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All eyes on China upon easing restrictions: Road to recovery to be bumpy for PP, PE and PVC across Asia

by Pınar Polat - ppolat@chemorbis.com
  • 06/06/2022 (13:26)
Shanghai, not only China’s biggest city with a population of around 25 million but also a key financial, manufacturing, and shipping hub, ended a two-month Covid-19 lockdown as of June 1st while pandemic measures were also relaxed in the capital Beijing.

These steps were taken despite the government’s commitment to the “zero-case” policy and were considered an attempt to reduce the pandemic’s negative impact on the economy.
Polymer markets have also suffered from Covid-hit demand since late March amid China’s latest uphill battle. Easing restrictions have now raised questions about a demand recovery among players across polymer markets in terms of its timing and extent, as players are trying to gauge whether it will help drive polymer markets higher both in China and the rest of Asia amid a slew of concerns from supply glut to dauting economic challenges..

While the initial market reaction in China has mostly been limited to an improvement in the sentiment, players have mostly voiced expectations of a gradual recovery, underlining that “more time” is needed post-lockdown.

Local PP, PE markets slightly up on rising Dalian futures prices

After a two-month-long downtrend, local PP and PE prices in China shifted direction and posted slight increases last week amid the cautious recovery in the sentiment. The post-lockdown demand recovery was slow, but the steady gains in the Dalian futures prices pushed spot prices slightly higher.

The rise in Dalian futures prices, meanwhile, was driven by the optimism around Shanghai’s reopening and firm energy markets.

A trader said, “Local PP and PE offers have climbed higher on stronger Dalian futures values this past week while import prices remained largely stable. There is also a positive impact from the first week of Shanghai reopening in terms of higher crude oil futures. Most players expect that downstream production would only ramp up slowly, hence recovery would be gradual.”

During the week that ended on June 3, PE prices were flat to CNY50-100/ton ($7-15/ton) higher while homo-PP raffia and PPBC inj. prices were assessed CNY50-200/ton ($7-30/ton) higher on the week.

China – PP – PE – Local

As for imports, meanwhile, prices took a breather from a long downtrend and followed a largely stable trend. This was also attributed to the improvement in the overall sentiment, along with the rise in local PP and PE prices.

Hopes for a rebound in SE Asia pinned on China’s return

Southeast Asia’s PE markets remained stable for HDPE film while LLDPE and LDPE film offers were $10-50/ton lower over the past week, with persisting pressure from weak regional demand along with competitive offers with origins including Russia, South Korea, and India.

PPH prices, meanwhile, followed a largely stable trend last week after losing ground since early April.

Players spent the week mostly monitoring demand conditions in China, as a Vietnamese trader put it, “A section of the market is certainly concerned about prices rising as a result of the opening up of the Chinese markets although we haven’t noted an increase in demand. Buyers are still not confident enough to make purchases as the outlook is still murky.”

What lies ahead for polyolefins?

The pace of demand recovery in China’s PE and PP markets in the post-lockdown period in Shanghai is likely to steer the market trend this week. The rise in crude oil futures, if sustained, may also contribute to pushing local prices higher.

The market has not run out of bearish factors, meanwhile, considering the expected supply pressure amid new PP and PE capacities at home, and the off-season for PP and PE applications.

Still, a sustained recovery in China’s polyolefin markets is also likely to revive the overall sentiment across Asia markets as China’s improved buying appetite would mean less aggressive exports and re-exports, in other words reduced sales pressure amid major suppliers, in the rest of the region.

Local PVC prices extend losses, defying optimism in PO sentiment

Contrary to local polyolefin markets, PVC prices inside China have remained on a soft path in China, weighed on by the persistently weak demand despite rising PVC futures prices.

During the week that ended on June 3, spot ethylene and acetylene-based PVC prices were assessed CNY200-300/ton ($30-45/ton) lower than last week. “Stronger Dalian futures values were eclipsed by weak demand conditions. Still, the market activity was resuming as Shanghai reopened on June 1 and market players are evaluating the impact of it,” a trader commented.

As for imports, meanwhile, there was stability, and offers to China were few and far between due to lower netbacks provided by the market. Moreover, players have already started to wait for a major Taiwanese producer’s July offers.

Will China’s potential recovery manage to lift India PVC markets?

PVC prices in China are likely to reverse course this week so long as the rise in Dalian futures values continues and demand gradually improves post-lockdown.

When it comes to how the developments in China markets influence Asia, things get more complicated. The key Indian markets, which were standing at a one-and-a-half-year low over the past week, have so far remained indifferent to the improved sentiment in China, due to the pressure from ample supplies, the monsoon season, and the reduced customs duty.

There are divergent opinions about whether a potential improvement in China’s PVC markets will lead to an upturn in India. The Chinese selloff has started to fade as traders stopped short selling due to possible demand recovery inside China as well as the worsening shipping situation, which may open the way for a bottom-out. On the other hand, China’s demand recovery may be bumpy, and further bearishness may be ahead for Asia PVC markets with domestic factors in India adding to it.
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