Will local PP, PE prices maintain their upward momentum in China?

08-Jul-11
Local PP and PE prices in China have posted increases this week following prolonged downward trends, as per ChemOrbis. Prices began to move higher late last week when crude oil and naphtha prices started regaining after falling to their lowest levels since the start of the year. Domestic PP and PE prices posted week over week increases of CNY400/ton (US$62/ton) for LLDPE film, CNY100-250/ton (US$15-39/ton) for LDPE film, CNY100-200/ton (US$15-31/ton) for HDPE film and CNY150-300/ton (US$23-46/ton) for homo-PP. Upstream, crude oil prices have risen by over US$6/barrel after falling close to the US$90/barrel threshold in late June, while spot naphtha prices on a CFR Japan basis have increased by around US$85-90/ton when compared with their lowest levels in June. Spot ethylene prices have gained US$30/ton on a CFR Northeast Asia basis over the past week while spot propylene prices on an FOB Korea basis have risen by US$25/ton when compared with the past week. Sellers pointed to the fact several PE plants inside China will be undergoing maintenance shutdowns over the next two months is another factor supportive of higher prices, adding that LLDPE film demand is also expected to pick up soon owing to the impending high season in the agricultural film sector. Trading activity has picked up in both the PP and PE markets this week as traders and distributors have moved to replenish their stocks in anticipation of further price increases in the days ahead. Stronger LLDPE and PP futures prices earlier this week also helped encourage traders and distributors to return to the market this week. However, the upward momentum in both PP and PE markets showed signs of slowing down in the latter part of this week, leading some players to question the medium-term viability of the current increasing trend. While traders and distributors have been more active in the market over the past week, converters have remained wary of purchasing beyond their immediate needs, with most converters complaining that demand for their end products has not shown any improvement recently. News that the Chinese Central Bank decided to raise interest rates for the third time this year as part of its ongoing effort to restrain inflation further dampened buying interest later in the week, with several distributors commenting that they are no longer feeling confident about the possibility of further price increases over the short term. Players reported that LLDPE and PP futures prices have also begun to show signs of stabilizing in the last few days of this week, contributing to expectations that domestic PP and PE might also stabilize in the week ahead.
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