Asia Daily PP and PE Overview 11 September 2017

In China, futures market continue to weaken and the number of transaction also drop notably. January delivery contract for PP slipped CNY127/ton ($19/ton) to close at CNY9166/ton ($1202/ton without VAT) and LLDPE contract closed at CNY85/ton ($13/ton) lower, at CNY10020/ton ($1314/ton without VAT).

Trading activities in domestic spot market is not very strong on the first trading day of the week and due to negative effect from futures trading, traders cut offers for both PP and PE by up to CNY150/ton ($23/ton) from last Friday. At the meantime, near term outlook appear to be positive as the environmental inspection in Shandong area has ended and converters here, especially those in agricultural film sector, are ramping up restocking activities. A trader said, “We sold 400 tons of PE to a converter in Shandong today without any negotiation. More buyers should be returning to the market soon, which would prevent local market from any significant drop.”

Several buyers confirmed the intention to make replenishment in the coming days, as they are now able to ramp up production rate after the environmental inspection. What deter immediate buying interest lay in the recent rapid price increment, from which buyers become more selective when it comes to restocking. “End product orders are good, yet raw material costs are too high. We hope to obtain additional discount in the coming days with futures trading weakened four sessions in a row.”

There are only few international suppliers open new offers to China today and import PE continue to witness increment. Qatari maker lifted LLDPE film offers by $20/ton week on week to $1240/ton CFR China, LC 60 days term while LDPE film stand at $1290/ton with the same term. “Strengthen Chinese Yuan makes it cheaper to buy US dollar based cargoes. Buyers are still cautious about the current market prices, however, better acceptance is expected.”

A major Saudi Arabia producer maintain import homo-PP offers at $1190-1200/ton CFR China term with very limited deals reported. “Buyer are resisting this offers, though suppliers are in no rush to adjust prices in the absence of sales pressure. There might also be opportunity to divert some cargoes to USA as supply in this market shrink after the hurricane Harvey. As a result, we think PP market in China might follow more of stable to firm in the coming weeks.”  

In Southeast Asia, purchasing activities remain limited in line with suppliers’ continued effort to push prices higher. Some import offers for homo-PP are facing serious resistance in Vietnam, which sellers are forced to cut back on hike target to close only a small deal.

Late last week, international traders lifted import homo-PP offers to $1200/ton CIF Vietnam, LC AS term for several cargoes originated from Saudi Arabia. Today, same traders decided to step back on the hike target, opening new offers for the same cargoes at $20/ton lower - $1180/ton CIF Vietnam, LC AS term. Only couples of buyers agree to make purchases at the adjusted offers, though at very small quantity. Converters are on the other hand, are struggling to transfer the recent hike in raw material costs to end product prices. “We decided to suspend all purchases as we are only able to convert 50% of the hike in PP into end product prices. We are bearing loses of the other 50%,” a woven bag converter said.

Vietnamese players believed that import homo-PP for dutiable origin might have seen the peak, though the limited supply condition might continue to support market to remains on the stable to firm notes. Any attempt to bring prices above the $1200/ton might immediately come down at the current demand status, market sources said.

Meanwhile, there is a widely discussion among Indonesia buyers calling for a price correction by October pointing to the fact the demand is diminishing as prices are too high now. “Homo-PP yarn might be under pressure as woven bag makers are not receiving sufficient end product orders. Supply for this grade is better than others, hence we do expect to see some discounts to emerge.”

There are very limited new offers for PE reported though players are looking at the firmer prices given healthy buying interest in China and persistently high upstream costs. A local PE producer in Indonesia, who has been operating at lower rate due to high ethylene costs, might remain at the current condition even if local PE offers hit the IDR18,000,000/ton ($1369/ton) without VAT, cash term. A trader said, “The current tightness in domestic supply thus might continue in the coming month. We are in no rush to deplete on hand inventories hoping to achieve better margin in the near term.”

Within domestic Vietnam, traders lifted LLDPE film prices by another VND200,000-300,000/ton ($9-13/ton) from last week, reaching VND30,700,000-30,800,000/ton ($1228-1232/ton without VAT), FD Vietnam cash term. “Sales are slow as converters need time to adjust to the current trend. However, we think demand should pick up with the support from steady firming import market.”