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China’s import PP market yields to mounting trade war, weak demand

by Pınar Polat -
  • 07/08/2019 (10:12)
After following a largely stable trend for the last three weeks, import homo-PP prices in China have recently retreated due to thin demand as well as the re-escalation of trade tensions with the US, which had a direct impact on the futures prices and the CNY/USD exchange rate.

Heightened trade tensions weigh on market dynamics

Soon after the latest round of trade talks between two economic giants that started on July 30 in Shanghai, China, President Trump expressed new plans to impose tariffs in a series of tweets.

Accordingly, the US will impose 10% tariffs on an additional $300 billion worth of Chinese goods starting from September 1.

The news found an immediate reflection on the futures market as well as the CNY/USD exchange rates.

Chinese Yuan plunges

On Monday, the Chinese currency dropped to its weakest level against the US dollar in 11 years and triggered a global sell-off in financial markets.

On Tuesday, The People’s Bank of China (PBoC) fixed the yuan’s exchange rate for $1 at 6.5784 yuan.

PP Futures dip 3% on week

September PP futures on the Dalian Commodity Exchange witnessed a weekly loss of CNY267/ton ($38/ton) or 3% as of August 6 and continued to put pressure on the PP market, particularly for locals.

Demand is hit hard

The recent sharp depreciation of the yuan against the US dollar has dampened the buying sentiment further for import cargoes.

A trader commented, “The import homo-PP market has shifted direction after the Chinese yuan hit its weakest level against the US dollar in more than a decade early this week. This has hindered demand for import PP cargoes further as buyers are refraining from any fresh purchases now in order to avoid currency fluctuations. We think that the market will lose further ground in the days to come considering weak macroeconomic signals.”

Local PP prices already softening for a month

ChemOrbis Price Index suggests that China’s local PP market retreated from its two-month high in early July.

Since then, the market has remained on a downtrend in the face of lower PP futures, high local polyolefin supplies along with thin demand.

The ongoing softening in the local market is also cited as another factor putting pressure on import prices.
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