Players react to arrival of PP, PE cargoes from new capacities in China

01-Aug-14
Players in China report that some non-prime material from new coal based PP and PE capacities is beginning to arrive on the market, according to ChemOrbis. Initial reactions to this material have been mixed, although most commentators believe that new coal based capacities will need some additional time before they can start to send prime grade materials to the market. A distributor based in Shanghai stated, “Some near-prime and off-spec materials from coal based capacities began to appear on the market last week and the arrival of these materials is affecting buyers’ sentiment. So far, the quality of the material has not been very satisfactory as the melt flow properties of the material have been uneven. We believe that prime grade materials from these new plants may become available around October and that market supplies will loosen once prime materials from these new plants begins to enter the market.” A trader commented that the emergence of material from new coal based plants would help keep supply levels sufficient, adding that the strongest impact among the different PE products would probably be seen for LLDPE. Another trader expressed doubts that material from new coal based capacities would have a major impact on the market in the coming months. “Some material from new capacities is starting to reach the market, but we do not think that these cargoes will have a major effect on prices over the medium run as it will take some time for the new plants to achieve stable production rates and acceptable quality,” the trader reported. A third trader concurred, stating, “New coal based capacities are still undergoing trial runs and we believe that it will take at least two more months before these plants manage to start producing on a commercial scale. Therefore, we remain bullish regarding the market outlook for August and September.” Meanwhile, some other players were more concerned about the likely impact that new production would have on pricing, as per ChemOrbis. “Initial offers from coal based capacities stand at very attractive levels and we feel that these prices must be below the overall cost of producing at the coal based plants. The emergence of these new materials has created concerns in the market and many buyers are keeping their purchases to a minimum in order to better manage their risks,” a distributor reported. A source at a Chinese PP producer added, “The arrival of new material from coal based capacities is already beginning to affect buyers’ behavior and we believe that these influences will be more strongly felt in the fourth quarter.”
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