Asia Daily PP and PE Overview 5 October 2017

There are no trading activities in China as players are away for National Day holiday and Mid-Autumn Festival. Market would resume on 9 October.

In Southeast Asia, there are very limited numbers of real transactions reported though market is fully aware of the supply tightness condition. Regional buyers are discussing about the possible market direction in the coming week as Chinese buyers are returning from a week-long National Day holiday.

Two scenarios are on the table: first, market might firm up toward the second half of the month if post-holiday replenishment activities in China is strong and the second are just totally opposite. “Southeast Asian buyers in both PP and PE market have been hibernating throughout the week, waiting for clearer market direction in China before making decision. This is a risky move, from our perspective, because if post-holiday demand in China return healthy, there might not be cargoes available in Southeast Asia market,” a regional trader commented. The source offered Middle Eastern homo-PP cargoes to Indonesia at $1175/ton CIF and received bids at $1150/ton with the same term.

Looking at the first scenario, players are pointing to the fact that total PP and PE inventories at Chinese domestic producers’ warehouses were much lower than the normal levels before the holiday kick-start, stood at about 580,000 tons. With an estimation of 200,000 tons of inventories accumulated during the off days, local producers are still free from the sales pressure that was initially projected. “It is also the traditional high demand season for flexible packaging and agricultural film sector, and we are confident that buyers would have to make additional purchases to fulfill production requirement,” an international producer said.

As CommoPlast reported earlier, Chinese government has ordered companies in 28 cities across the county to curb the use of diesel truck by 1 November in an effort to tackle air pollution during winter. All domestic shipment therefore must be arranged by railway, which would be more costly and take longer time to arrive. The impact on the petchem industry is still unclear. “However, a natural reaction from converters, whose profit margins have been squeezed throughout the year, is to avoid such costs by simply pushing purchases and delivery before the date,” a trader commented. Which might ensure an active market condition right after the holiday, the source added.

In contrast, players who support the notion that Chinese buyer might not immediately proceed with replenishment after returning from the holiday; are looking at several factors. “We believed that buyers would become cautious about fresh buys considering the recent drop in the upstream ethylene market. A slowdown in buying interest would encourage suppliers to give discounts to deplete inventory ahead of the year-end book closing,” a converter said.

Players are also looking at the high quantity of import cargoes arrival to China in recent months, despite the delay of Iranian materials. This would possibly add some sales pressure to local ground as supply might be loosened to a certain extent.

“However, we think that PE market might face higher risk of price correction than PP, since supply for the later grade seems tighter across the global market. And depending on how much lower would ethylene costs dip, we are not expecting any significant cut in PE offers in Southeast Asia market, especially for HDPE film cargoes,” a regional producer added.

Southeast Asian market might remains sluggish for the remaining of the week due to the widespread conservative stance. Players might return to market in the coming week and most suppliers are holding firm on the available cargoes, refusing any substance discount regardless on the stiff buyer resistance.