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Will PE supplies from China flock to SEA?

by Merve Sezgün - msezgun@chemorbis.com
  • 17/05/2019 (04:35)
China’s continuing excess of PE supply has raised questions of whether Chinese sellers will rush to divert their allocations to export outlets, particularly to Southeast Asia, over the near term.

According to traders in China, the two major domestic producers’ overall polyolefin supplies continued to hover near one million tons this week and demand is currently not strong enough to absorb the surfeit of supply. The situation has been further worsened by the renewed trade war with the US as buyers have immediately retreated to the sidelines and delayed their purchases.

Chinese LLDPE shows up in Indonesia

A plastic bag manufacturer in Indonesia reported that he received an LLDPE film offer for a Chinese origin this week. He said, “The seller is willing to negotiate on his price level. We heard that some sellers in China have turned their attention to export outlets given fading demand in their own market.”

Ample local supplies exacerbated by record-high imports

A Singapore-based trader noted that many Chinese traders secured a great amount of import PE cargoes in the past months in line with their expectations that the trade war would be over soon. “We were also hopeful that the two sides would reach a deal. However, the battle has re-escalated and this has led to further price reductions in China,” he commented.

Statistics suggest that China’s cumulative PE imports in the first quarter reached around 4 million tons to hit a record high. Total LLDPE imports surged to 16-year high. This also added to the excess supply inside China.

SEA offers healthy premium to Chinese sellers

China’s local LLDPE film market has hit its lowest levels since 2009 while prices on CFR China basis have recently broken below the $1000/ton threshold. Data from ChemOrbis Price Index suggest that the weekly average of LLDPE film prices on CFR SEA basis is currently carrying a premium of $50-55/ton over China’s import market.

Based on these facts, Chinese traders might soon look for opportunities to divert their re-export PE offers to Southeast Asia.

Increasing number of bearish factors in SEA

In Southeast Asia, meanwhile, import PE prices have hardly seen any changes more than $5-10/ton for the past three months. The market has been mostly stuck between Mid-Eastern sellers’ insistence on price hikes and the persistent pressure from ample US supplies.

According to several players in the region, the market’s search for a price direction may be approaching an end given a prevailing number of bearish factors, particularly the recent plunge in China.

“Regional demand has already been disappointing, pushing major PE suppliers to step back on their hike requests for the past couple of months. The weak state of demand coupled with the bearish trend in China might keep Southeast Asia’s import market under downward pressure,” a trader opined.

Another regional trader added, “In fact, import prices have already seen some decreases this week as the high ends of the overall price ranges have started to disappear from the market.”
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