Excess stocks in China depressing sentiments in global PE markets

20-Mar-10
In China, traders and distributors are slowly working off excess stock levels that were built up based on overly optimistic demand growth forecasts amid high crude oil prices seen at the start of the year, as per Chemorbis. In addition to pulling down prices inside China, the large volume of re-export offers is beginning to have an impact on other global PE markets, altering supply/demand balances and encouraging buyers to be increasingly hesitant in their purchases regardless of the state of local demand. Chinese traders initially sought to sell off their excess stocks to USA, where a recent spike in ethylene feedstock costs had created speculation about a possible arbitrage window for PE from Asia to the US. However, American buyers proved reluctant to accept the long wait times required for delivery of ex-Asia cargoes while high freight rates from Asia to the US caused Chinese traders to seek other outlets. The fact that some of these traders were holding large stocks of Iranian origins which could not legally be resold to the US also helped dissuade them from selling to the US. With the US proving unsuitable as a destination for their excess stocks, traders in China reported that they are now eyeing other re-export markets such as Africa and Turkey, with rumors of re-export offers from China surfacing in the Turkish market this week. In Southeast Asia, the supply glut in China has succeeded in driving buyers to the sidelines after regional markets had reported solid demand at the beginning of the month. Over the course of the past two weeks, Southeast Asian buyers received a number of offers for deep-sea HDPE film origins from Chinese traders, which gave the market another source of cheap supply but did not have a direct impact on offers for mainstream origins. This week, however, the quantum of re-export offers from China has grown in number, shifting away from deep-sea origins and towards more mainstream cargoes. Re-export offers for mainstream HDPE film origins from Chinese traders constituted the low end of the overall import range this week, while re-export offers for mainstream LLDPE film origins were also reported at competitive levels. These offers helped undermine buyers’ willingness to accept higher end offers from Southeast Asian producers, with converters reporting being able to conclude deals with regional producers at prices US$40-50/ton below the producers’ initial offer levels. Re-export offers from China have also begun to appear in the Indian market, with distributors inside India attributing the insufficiency of Chinese demand to the Chinese government’s recent moves to tighten monetary policy. Re-export offers from China have helped pulled down import prices to India over the past few weeks, which prompted domestic producers to slash their offer levels to the local market by US$110/ton this week. Distributors in India added that they are also receiving re-export offers from traders in Pakistan and the Middle East.
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