Asia Daily PP and PE Overview 07 Dec 2016

In China, futures prices surge for the third consecutive session today with PP contract skyrocketed CNY423/ton ($61/ton) to settle at CNY9315/ton ($1156/ton without VAT). LLDPE futures gained CNY245/ton ($36/ton) to close at CNY10155/ton ($1260/ton without VAT).

Three firming sessions in a row accumulated some CNY1006/ton ($146/ton) hike on PP futures, while domestic market is not increasing on the same pace, creating a gap of approximate CNY365/ton ($53/ton) between the two trading grounds (based on today’s prices). This explains to why most cargoes takers these three days are traders, who are leveraging this arbitrage opportunity. This, however, raises question about the sustainability of the current trend, as demand from converters remain mediocre. A trader commented, “Manufacturers are preparing for Chinese New Year orders; however, traders are more active in taking cargoes this week.”

The general expectation among domestic players is that futures prices might sustain the firming trend for the remaining of the week, and together with the large draw down in domestic inventories, prices might hold firm in the near term.

Import market is also reacting to better sentiment in the local ground. Buyers have accepted to replenish homo-PP cargoes at $20-30/ton higher than last week. Most deals for dutiable parcels are reported in the range of $1030-1040/ton CFR China, LC 0-90 days term.

Import PE to China is not left out from such impressive come back in demand; just that prices at the upper end of the overall price range are not having easy time getting buyer’s acceptance. One positive sight is that even USA suppliers are trying to impose hike on their cargoes after achieving satisfactory sales result in the previous days, gradually erasing the lower end of the market. A trader said, “We lifted USA’s LLDPE film by $50/ton to reach $1110-1120/ton, however, respond is poor.”

On the other hand, Thai maker, who has cut their prices yesterday, is reporting good number of deals concluded. A source close to the company said, “We are trying to limit the volume as buyers are very active in asking for additional cargoes.”   

In Southeast Asia, the PE sector remains soft with major international suppliers are reducing offers from last week to stimulate the persistent weak buying interest across the region due to the depreciation of local currencies. Saudi Arabia’s LLDPE film dropped $30/ton week on week basis to reach $1160/ton CIF Indonesia and Vietnam with a market source said, “The PE market is really weak and we think offers might continue to move lower in the near term. LLDPE really caught us with surprise, as we did not expect such rapid deterioration in prices considered the previous supply tightness. We are not very confident in making fresh replenishment, not only on weak local demand but also the bearish prospect of the currency.”

LDPE film offers also appeared to be softer with prices at the upper end of the overall price range are facing tough time attracting buyers. Vietnamese buyers reported receiving $60/ton cut on Middle Eastern LDPE film, at $1320/ton this week, an a buyer added, “Thai’s LDPE film remain below the $1300/ton threshold and this is the pressure point for other suppliers. We are waiting for further reduction before making replenishment.”

The PE market has been holding on the firm trend over the past month primarily due to the support from the LDPE film grade, which prices surged to multi-year high on limited availability and healthy demand in China. Now that demand for LDPE film is waning, it might affect other PE film grade’s prospect, market sources said.

The PP market is rather firm, and sentiment got brightened with news about the come back of China demand. Except in Vietnam, where comfortable local supply keep buying interest low and hurdle domestic price increment; buyers in Indonesia have accepted to replenish material from import market after obtain reasonable discount. A regional trader commented, “We are expecting some positive spillover effect from the improved demand condition in China. Prices might not be able to increase significantly; however, better buying interest is what suppliers are looking for.”