Slow movement of PE, PP in China on importers’ reluctance to accept price hikes

Buyers from China resurfaced to buy cargoes three weeks ago when crude prices spiked past US$70/bbl as per ICIS. Demand for imports of polyethylene (PE) and polypropylene (PP) from China is beginning to shrink over the past fortnight on buyers’ resistance to price hikes by sellers in line with rising crude and feedstock values. Currently the market seems to be at a standstill as buying quantum has decreased at current prices on one hand and unwillingness on part of sellers to drop prices on the other. Also, higher prices have been supported by restricted avails due to planned and unplanned shutdowns of plants in Asia from April to June. However, despite supply constraints, importers in China are reluctant to lift material at these price levels as they await demand from overseas to pick up. Demand for almost all kind of resins is very weak in south China, and as per ICIS, HDPE grades were being offered as high as US$1,280/ton CFR China, while PP injection grades lingered around $1,100/ton CFR China last week. The estimated start up of Sinopec’s JV plant in China and Sumitomo Chemical’s JV plant in Saudi Arabia is expected to create a supply glut in next quarter. Traders also seem wary of buying at current levels and holding inventories as new supplies would push regional prices down. If demand from China fails to perk up, the region will once again be faced with a build up in regional supplies, thus setting the stage for a sharp downward price correction. When there is excess supply and weak demand from the export-oriented end-users in China, imports would have to match local prices in order to be competitive. But players feel that this drop may be moderate as any China’s net import requirement continues to be colossal. Asian and Middle East producers seem likely to divert their exports from China should prices fall too much and cut into the feedstock costs.
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