China discusses possible impacts of new coal based PP, PE capacities

China will introduce massive new coal based PP and PE capacities in H2-2014, while players are trying to forecast the impact from these new plants, as per ChemOrbis. Around 3.2 mln tpa of PP and 2.2 mln tpa of PE capacities are due to be brought online across the country, and this is likely to exert pressure on the market. Overall activity inside China was not vivid this week as converters met their basic requirements rather than stocking up given the foggy outlook for later this year. Some players believe that domestic producers already started to face pressure from unspectacular demand and nearing capacity additions after they issued some downward adjustments of around CNY100/ton (US$16/ton) this week. A distributor commented, “Local PP and PE prices eased around CNY100/ton (US$16/ton) except for HDPE grades this week. PP prices are facing pressure from the new coal based capacities, particularly for PP raffia, which caused this grade to be traded with a discount when compared to PP injection.” Another said, “This week, local prices softened by CNY100 (US$16/ton). We are not so optimistic about the outlook for homo-PP with respect to PP copolymer given the anticipated impact from coal based plant start-ups.” A Xiamen based trader reported that local PP and PE prices have been adjusted down by around CNY100-150/ton (US$16-24/ton) from last week. “Domestic producers cut their LDPE and LLDPE prices by CNY100 (US$16/ton). A producer also lowered PP copolymer offers by around the same amount,” he added. A producer who adjusted their PP prices lower said, “We are concerned about the new capacities. We feel that they will affect the market more visibly by the end of the year.” A Shanghai based trader agreed, “New output will have a great impact on the homo-PP market, especially during the end of the year.” “We believe that fresh materials from those capacities will be mainly directed to the domestic Chinese market first as there are still some documents missing for these coal based materials. It would not be practical to focus on South East Asia,” a trader based in Ningbo commented. He added, “We are not feeling so optimistic about the last quarter of this year since the market will need some time to digest these new quantities.” A Shanghai based distributor commented that they need some time to monitor the situation until the end of July to see the size of the impact on the PP and PE markets. “The coal based capacity will be starting up and finding its way to the market. These materials will have an impact on the domestic market in terms of quantities, but we don’t expect a major affect in terms of prices,” said a trader. According to ChemOrbis, a source at an Indian producer summed up the current uncertainty regarding the new capacities as follows, “We will need to monitor the progress of the new coal based capacities in China, particularly whether they are directed to local consumption or for exports to Southeast Asia. If they are exported, it could affect the market balance since the costs of these coal-based materials is much lower than those using traditional methods. However, we cannot be sure that the coal based producers will reflect their lower costs onto their selling prices since we believe the sellers may want to try to maximize their profits by selling at market level. Plus, these producers will have to be careful not to be accused of dumping materials or they will become subject to anti-dumping duties in future.”