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China PP, PE markets close 2020 on a soft note; SE Asia feels pressure

by Merve Sezgün -
  • 31/12/2020 (09:48)
In China’s import PP and PE markets, the upward trend that started in April and continued for almost seven months came to a stop in early December. Successive price corrections have appeared since the markets stabilized at their multi-year highs.

While China is closing the year on a soft note, it is also exerting pressure on Southeast Asia, where buyers have long expected to see a price relief.

When discussing the January outlook, Asian polyolefin players mostly pointed to the following factors that can play a role in shaping the tone of the market:

•   Supply improves and demand retreats in China
•   Upcoming Chinese New Year holidays
•   SE Asian buyers take wait and see attitude
•   Freight rates likely to remain high until Feb-March
•   No immediate relief expected in overseas PP, PE supplies
•   C2 and C3 prices maintain high levels, crude oil at 10-month high

China’s softening likely to be stretched into Jan

Tapering demand and falling futures led to CIF China homo-PP raffia prices retreating from an 18-month high at the beginning of December.

Data from ChemOrbis Price Index reveal that the weekly average of PPH raffia prices for overall origins has decreased a total of $15/ton since then to be assessed at $1070/ton CIF China, cash at the last week of the month.

In the PE market, the weekly averages of import prices for all origins were assessed at $1390/ton for LDPE film, at $1015/ton for LLDPE film, and at $980/ton for HDPE film in the week that started on December 28. When compared to early December, those levels were down by $20/ton, $30/ton, and $55/ton, respectively.

Players are not expecting the country’s polyolefin markets to resume their upward trajectory in the near term although some demand should return amid pre-holiday replenishment activities.

“The long-lasting uptrend pushed prices to highs towards which buyers have started to show resistance. We are not expecting to see any sharp reductions in prices, but the softening trend is likely to continue in the near term,” a trader commented.

Competitive Chinese PP offers weigh on sentiment in SE Asia

In Southeast Asia, where CIF homo-PP raffia prices are still carrying a premium of more than $150/ton over import prices into China, buyers have taken a wait-and-see attitude in anticipation of seeing price corrections.

“CIF SEA prices may come off to restore the balance with China at some point,” buyers said.

Not only the softening trend in China but also the rising number of competitive offers from the country have pushed regional buyers to the sidelines, a few sellers noted.

“Trading activities have reduced given the year-end lull. However, the mainspring of the current quietness is buyers’ resistance to high offer levels. We hear more Chinese PP offers at competitive levels nowadays, which are fueling price correction expectations,” explained a trader.

SE Asia PE markets largely stabilize on China effect

The softening of the China market has also affected Southeast Asia’s PE sentiment and import prices into the region have largely stabilized at multi-high levels.

A few traders, meanwhile, reported that they reduced their LLDPE and HDPE film offers slightly this week to test the market response.

“Buyers are not interested in discounted offer levels, since they look at China and say that prices should decrease more. We think that the market may remain under pressure next month,” a trader noted.

Overseas suppliers reluctant to reduce offers

On the other side of the coin, there are ongoing supply limitations and logistical problems across the globe.

Polyolefin supply from several overseas markets is yet to be back to comfortable levels, which is likely to keep the amounts of decreases in check in the near term.

High freight rates are also expected to keep offers on CFR basis at elevated levels in the near term. “The shortage of vessels and containers might be resolved once the Chinese New Year starts in February. Freight rates are likely to remain high in January,” players opined.

Last but not least, PP and PE suppliers continue to point to high upstream costs. Crude oil futures have been largely stable at their highest levels in 10 months. Spot ethylene and propylene prices in Asia are also firm at $1005/ton and $1010/ton, respectively, on CFR China basis.
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