Traders in China saddled with high PE stock levels

Despite steadily reducing purchases, several Chinese traders are finding themselves stuck with high stock levels they are unable to sell locally as demand weakens. As per Chemorbis, demand has weakened on concerns over sovereign debt crisis in Europe and the Chinese government’s own tightening monetary policies, in addition to the plunging energy sector which caused buyers to step away from the market. On the lookout for alternative outlets for their excess stocks, some traders claim to have concluded deals with customers in places as diverse as South Africa, Brazil and Southeast Asia. As import prices in China have posted steep declines over the past several weeks, large traders also complained of significant financial losses suffered on the cargoes in their warehouses, as customers begin to break their own contractual agreements and have started to refuse additional deliveries. These setbacks have prompted traders to attempt to re-negotiate their contractual agreements with overseas producers. Some traders plan to seek compensation for their losses from their suppliers in Iran since the American embargo against Iran makes it difficult for traders to re-export Iranian materials to other countries, the supply build-up of Iranian materials is said to be relatively more severe than the excess supply issues for other origins. China’s massive appetite for imports has been one of the main factors helping major petrochemical companies through the ongoing global economic crisis. In 2009, China imported a record 3.8 mln tons of HDPE, a 66.8% increase from 2008, while also importing 2.2 mln tons of LLDPE, a jump of 49% from 2008. China’s imports for the first four months of 2010 have kept pace with the county’s record setting numbers for 2010, with LLDPE imports for the first four months of 2010 posting a 10.7% increase over the same period of 2009 while HDPE imports for the first four months of 2010 are 8.5% higher than the corresponding figures for 2009. In addition, initial figures from Chinese Customs report that the overall volume of imports to the country was up by 48.3% in May. In addition to the surplus of import cargoes, the supply of domestic material has also been rising in China, where several large new capacities have come on-line in the first few months of 2010. The past month alone has seen the start-up of Zhenhai Petrochemical’s new 450,000 tpa HDPE/LLDPE plant and Sinopec Tianjin’s new complex which includes HDPE and LLDPE capacities of 300,000 tpa each.