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China’s PP, PE and PVC markets continue to offer poor netbacks despite better sentiment

by Merve Sezgün - msezgun@chemorbis.com
  • 16/09/2021 (10:39)
Sentiment in China’s polymer markets has been supported this week by several factors including a pick-up in demand ahead of the Golden Week holiday, a tighter supply outlook amid typhoon-hit ports, as well as rising oil and Dalian futures. However, this major market continues to offer the least favorable netbacks in the world as spot prices cannot rise as much as expected.

The supply outlook has tightened since China had to suspend some operations at Shanghai Port and Ningbo-Zhoushan Port on the heels of Typhoon Chanthu earlier this week. Although terminals at the ports started to resume operations on Tuesday, deliveries could face delays as the closures have created a domino effect, according to players.

Demand for most polymers, meanwhile, has started to pick up lately since buyers are now willing to build some stocks ahead of the approaching Golden Week holiday which falls on Friday, October 1 this year.

Needless to say, rising upstream costs are also contributing to the scene. The weekly averages of Brent crude and CFR Japan naphtha prices are up by around 9% from a month earlier. Spot ethylene prices have risen for the fourth consecutive week in Asia while sentiment for propylene remains firm. Additionally, coal prices inside the country continue to rise, providing cost support for both PVC and PP.

A combination of these three factors pushed LLDPE and PP futures sharply higher on Wednesday. January LLDPE futures on the Dalian Commodity Exchange settled CNY450/ton ($70/ton) higher while PP futures settled up CNY453/ton ($70/ton) yesterday. PVC futures were also up by CNY230/ton ($36/ton).

PP, PE prices rise, albeit very slowly

Homo-PP, LLDPE film, and HDPE film prices on CIF China basis have been tracking a stable to slightly firmer trend since the second half of June. LLDPE and HDPE have gained a total of 9-11% since the uptrend kicked off while homo-PP raffia has risen by 3% only.

LDPE film has been an exception, with prices surging 20% during the same period due to tighter supplies.

Comparing the current price levels in China with some other markets, ChemOrbis Price Index data suggest that the country continues to offer poor netbacks to overseas suppliers.

Taking LLDPE film as an example, the weekly average of prices was at $1155/ton CIF China last week while they were standing at $1350/ton in Egypt and at $1440/ton in Turkey. As for homo-PP raffia, China’s import market stood $415/ton below Turkey and $340/ton below Egypt.

 LLDPE- CIF -Global Prices

“The upcoming capacities keep price increases in check in China. Polyolefin prices are not likely to see sharp gains in the near term since the capacity additions are balancing out all the bullish factors. China’s major suppliers are reluctant to sell to the country due to low netbacks. Even Chinese producers are eyeing other markets where they can enjoy better margins,” commented players.

Local and export PVC hits fresh high, yet imports still below the April peak

Local and export PVC K67 prices in China climbed higher this week and hit record highs, according to ChemOrbis Price Index data. Chinese producers cited tight supply and high export demand as the main driver behind the fresh highs.

Although import prices have also been higher, they are yet to break their previous high of $1550/ton CIF recorded in April. The weekly average of K67 prices on CIF China basis has risen to $1455/ton this week, $95/ton below its April peak.

The premium that other PVC markets carry over China is a lot bigger when compared to PP and PE. ChemOrbis data reveal that China’s import K67 market is currently standing $530/ton below Turkey, $475/ton below Egypt, and $345/ton below India. These are the largest premiums over China since ChemOrbis began keeping records in 2008.

Global PVC Prices - CIF

“Northeast Asian sellers continue to focus more on India than China as the former offers better netbacks. Chinese suppliers are also looking at opportunities to sell in India and in other export outlets,” noted a regional trader.
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