Improvement in China market with oil price recovery anticipated tighter PE and PP supply

08-Jul-11

China’s polyolefin market has improved over the last week thanks to a recovery in oil prices and anticipated tighter supply of polyethylene (PE) and polypropylene (PP), as per ICIS. A US$50-100/ton hike has been heard over the past week for physical cargoes across many grades. Very little impact was felt in the markets of China’s latest interest-rate rise. However, doubts abound about the recovery due to the increasingly erratic nature of crude-oil markets. Oil started to rally late last week after Greece's parliament approved austerity measures. This was followed by Moody’s decision to downgrade Portugal's debt to junk status. The downgrade and the latest interest-rate rise in China resulted in both Brent and WTI prices falling on Wednesday as equity markets also took a hit. Oil markets had not factored-in another rate rise in China, and are now reflecting concerns about what the battle against inflation will mean for economic growth in 2011. PE and PP supply is set to tighten, however, as several cracker complexes are scheduled for turnarounds in August, pulling down China’s ethylene production by over 100,000 tons over July. Also, Shell Chemical has decided to continue to run its mono-ethylene glycol (MEG) plant in Singapore during an August turnaround at its cracker, resulting in purchase of around 40,000 tons/month of ethylene. Linear low-density (LLDPE) and low-density (LDPE) demand will also pick-up during that month as a result of the start of the next agricultural film season.