Softer energy costs exert downward pressure on domestic PE prices in China

09-Aug-11

Over the past few days, China's PE market has begun to change direction, as plunging energy costs have weakened sellers' confidence, as per ChemOrbis. Some traders are mulling to pare down their stocks out of fears of further price declines in the days ahead. Prices began to soften towards the middle of last week as energy markets retreated to price levels last witnessed in February 2011, with the declining trend beginning to pick up speed. Concerns about the health of the global economy prompted significant declines in crude oil and naphtha costs over the past week as global stock markets also tumbled due to disappointing economic data from the US coupled with ongoing European debt crisis. Crude oil prices have fallen by over US$13/barrel on the NYMEX since the beginning of August while spot naphtha prices on a CFR Japan basis have dropped by over US$100/ton since the beginning of the month, with the steepest declines coming at the end of last week. At the beginning of this week, a distributor is said to have reduced prices for locally-held HDPE and LLDPE by CNY200-300/ton (US$31-47/ton) while implementing larger declines of CNY300-400/ton (US$47-62/ton) on LDPE film prices as they had not implemented any reductions on their LDPE prices late last week. The distributor complained of difficulty in concluding deals even at revised price levels, adding that they are willing to negotiate with buyers placing firm bids. Another distributor reported to have slashed offers for locally-held PE by CNY400-500/ton (US$62-78/ton) last Friday in response to rapidly declining energy costs along with falling LLDPE futures prices. The distributor also complained that bids became scarce in the market towards the end of last week despite the significant declines seen in spot PE prices. On the buyers' side, converters reported that they are delaying their purchases whenever possible in anticipation of further price declines over the near term, believing that sellers would be willing to give them some additional discounts from current prices in order to conclude deals. Converters are not in any urgent need for material these days due to lack of many price inquiries from their customers. A converter in the film and packaging sector said to be currently operating at reduced rates owing to ongoing electricity restrictions from the government.