Asia Daily PP and PE Overview 16 Feb 2017

In China, Dalian Commodity Exchange continues to drop in large extent due to risk selling. May delivery contact for PP slipped CNY375/ton ($55/ton) to reach CNY8980/ton ($1119/ton without VAT). LLDP contract plunged CNY455/ton ($66/ton) from the previous trading session to close at CNY9910/ton ($1235/ton without VAT).

There is little movement in domestic spot market despite traders are offering up to CNY200/ton ($29/ton) discount on deals. It appears that converters are still digesting on hand stock and not ready to make fresh replenishment. Weaker than expected demand in addition to the continuous arrival of imported cargoes have exacerbated the issues with warehousing. “We have total of 28,000 tons of material, mostly PE, just arrived the main port, and arranging warehouses at the moment is very challenging,” a trader based in Shanghai reported

Interestingly, in spite of persistent weak buying interest, falling futures prices and high inventories levels, no suppliers agreed to larger discount to reduce pressure. Several factors are supporting such decision, including high replenishment costs at the moment and hope for improve demand remain strong. A market source commented, “We think many converters need longer time to retrieve normal operating rate after a long holiday. This means trading activities could improve in the near term.” Other traders continue seeking re-export opportunity to Vietnam for better profit margins. However, if domestic demand remains weak into March; traders might need to deploy more effective solution to reduce inventory pressure.

In Southeast Asia, sentiment is getting calmer toward the end of the week partially due to the lack of fresh offers from international suppliers. Besides, it is believed that regional buyers have replenished much of the needed quantity to overcome previous concern on tightening supply and surging upstream costs. Meanwhile, persistent sluggish demand in China has also added to the slowdown in Southeast Asia region.

A regional buyer commented, “We initially expected strong buying interest in China after the holidays, which might stimulate the regional market sentiment. However, more re-export cargoes emerge in Vietnam, indicating the weakness in local China market. We have yet to make any additional replenishment this week and prefer to wait and see on the side-line until the trend become clearer.”

Import PP and PE prices to Vietnam indeed started to show signs of stabilising, as the overall price range has not changed since earlier this week. Even the number of transaction in local ground has also stagnated. Player in the country commented that market would regain the momentum if Chinese buyers come back to replenish material. At the moment, more re-export cargoes from China are pouring into Vietnam.

In the regional PE market, Middle Eastern producers are planning for new offers in the coming week and initial plan call for medium range price increment. A distributor offer PE to Southeast Asia on behalf of a Saudi Arabia producer informed, “March allocation is sill very limited as our principal supplier is not operating at full rate given high feedstock costs. Therefore, prices are set to move higher. Supply might only normalise in April.”

In domestic Indonesia, demand for LLDPE film remains weak despite the persistent limited supply condition. A major local producer has recovered from the previous production issues, though still unable to fulfil spot orders. This condition has been in place for the past couple of month. However, buying interest might improve as converters in the agriculture started receiving better end product orders. A manufacturer reported, “Our end product order increased approximate 10-20% this month, and we are now feeling more confident to buy larger quantity. We hope this condition would persist in the coming month.”