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Clouds hang over China's PP, PE and PVC markets again on fears of fresh clusters

by Pınar Polat - ppolat@chemorbis.com
  • 16/06/2022 (02:44)
The Chinese government’s commitment to the “zero-case” policy persists, and so do the efforts to revive the covid-hit economy. The recovery hopes following Shanghai’s reopening in early June have recently been dashed again amid the uphill battle with new outbreaks.

As a reaction to the positivity around the news about Shanghai’s reopening from a two-month lockdown on June 1 as well as relaxed Covid-19 measures in the capital Beijing along with some other major hubs, China’s local PP, PE, and PVC markets had a slight improvement in sentiment from late May to early June, ending a two-month downturn.

Nevertheless, this optimism proved short-lived as the resurgence of new cases has caused fresh measures including movement restrictions or mass testing and this has dented the sentiment again.

PP & PE

After a brief revival, local PP and PE markets in China have been stable to softer recently despite firmer energy values.

The pressure from the demand side amid uncertainty over lockdownsand the off-season have kept Dalian futures prices on downtrend recently, putting pressure on spot prices.

September PP and LLDPE futures on the Dalian Commodity Exchange posted weekly losses of CNY174/ton ($26/ton) and CNY141/ton ($21/ton) as of June 15, respectively.

Adding to the scenario was high supply levels at home. As of June 15, the two major local producers’ combined polyolefin inventory levels were standing at 800,000 tons, reflecting slow demand recovery post-lockdown.

Local PP and PE offers were either stable from last week or posted small fluctuations of around CNY50-150/ton ($7-15/ton) so far.

A trader commented, “Crude oil is still trending up and cost support is there. On the other hand, there is still not much of improvement in terms of downstream orders following the ease of lockdown. Downstream buyers are likely to buy based on their needs. For supply, domestic availability is likely to increase due to fewer plant turnarounds and new start ups. We think that the markets will be stuck between firm costs and weak supply-demand fundamentals.”

Meanwhile, import prices defied the short-lived uptrend in the local prices during this period. Homo-PP raffia and injection prices for Middle-East origins have remained stable from last week at $1080-1110/ton CIF China, cash basis. As for PE, prices for the same origin were flat to $10/ton lower from last week at $1390-1410/ton for LDPE film, $1100-1120/ton for HDPE film and LLDPE film with the same terms.

Another trader commented, “The only factor that is preventing spot offers from moving up is weak demand. Demand has cautiously improved following the ease of lockdown. This week prices are rather stable even though futures prices went down.Overall, near term market trend is likely to be stable to slightly firm.”

PVC

Compared to the knee-jerk reaction in local PP and PE prices, China’s PVC prices gave a later but a stronger response to the relaxing curbs. The common point of these three products, on the other hand, was that their reactions were all temporary as fears over fresh Covid-19 measures hit the sentiment back.

This week, acetylene-based PVC prices were down by CNY100-150/ton ($15-22/ton) from last week while ethylene-based PVC prices were flat. September PVC futures on the Dalian Commodity Exchange were down by CNY546/ton ($81/ton) on the week as of June 15.

A PVC trader commented, “PVC futures prices were significantly down this week and pulled spot offers down. The recent economic stimulus policy announced by the Chinese government has limited impact on the demand side, as buying interest in the pipe sector is still slow. Supply is also expected to increase following the restart of many plants after turnarounds during the month.”

As for imports, the market is on a wait-and-see mode ahead of the July announcement of a major Taiwanese producer to Asia markets, with expectations offering a mixed-bag depending on the conditions inside China.

Near term outlook: Uncertainty over new measures vs higher oil prices

The uncertainty over the pandemic will keep demand inside China under pressure over the near term, beyond a doubt. While supply pressure for PP and PE remains another bearish factor, the state of export offers from China to India for PVC is also vital for Asia PVC markets.

On the other hand, higher energy values may underpin the sentiment to some extent as regional producers have already been operating with razor-thin margins, some players argue.
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