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Since returning from the Lunar New Year holiday in late January, the Chinese polyolefins market just could not catch a breath. The outbreak following the abrupt removal of the Zero-Covid policy caused disruptions in local economic activities while the raging inflation worldwide curtail consumption. Altogether, this negatively impacts the demand for both PP and PE. 

Nevertheless, producers across the region refused to conform to the persistently weak demand by cutting prices that would severely erode their profit margins. Instead, there have been mass production rate cuts from South Korea to the Middle East, leading the market to a tight balance.   

This week, the demand condition in China started to show a clearer sign of improvement for two visible reasons. Firstly, the widespread anticipation of the continued improving domestic consumption. The latest data showed that Chinese consumer spending is picking up with dining, entertainment, and travelling topping the list. Secondly, the perceived risks associated with import materials have reduced after international suppliers agreed to sharper discounts.

Polypropylene (PP)

With spot homo-PP yarn and injected traded in the local market at CNY 7600-7750/ton including VAT ($976 – 995/ton excluding VAT), Chinese buyers have been quite firm on their buy ideas for imported deep-seas cargoes at $900-910/ton based on CFR China terms.

This week, USA homo-PP yarn surprisingly emerges at $900/ton CFR China for late April loading, which attracted great buying attention. All available quantities (about 1000 tons) are sold out quickly while many buyers continue to inquire about additional allocation.

While these cargoes are likely to apply downward pressure on other sellers, many market players deemed the overwhelming responses a positive development.

“We can now determine the bottom price levels for homo-PP instead of a constant guessing that keeps the market sluggish. We are taking the $900/ton as a benchmark in negotiating with other sellers,” added, a trader.

Polyethylene (PE)

In the PE market, the focus this week is on LLDPE film as the demand for this grade is evidently stronger than others. New offers gallop lower with at least two Middle Eastern producers agreeing to close deals at $980-990/ton for LLDPE film after weeks of insisting on prices above the $1000/ton threshold. While transactions have been achieved, Chinese buyers remained cautious claiming that the current prices are not attractive enough. 

“This is especially when non-dutiable Indonesian LLDPE film has already been concluded at $1030/ton CFR China. We only booked a small quantity of Saudi cargo to maintain the stock level,” added, a trader.

All imported LLDPE film to China, except cargoes originating from Southeast Asia, is subjected to a 6.5% import duty. 

It is reported that spot availability for LLDPE film is relatively tight in the domestic market as buyers have not made any major replenishment in a long time. An uptick in demand from the agricultural and packaging sector in line with the recovering economic condition might cause a short-term supply tightness in this market. Sources also added that arbitrage traders are looking for competitive import parcels to fulfil delivery obligations as May 2023 contracts on Dalian Commodity Exchange are about the close.

A good number of deals for Indonesian LLDPE film are reported at $1030-1040/ton CFR China while USA cargoes are dealt at $950/ton with the same terms.

Talking to CommoPlast, several Chinese trading houses said they managed to secure a few thousand tons (each) of LLDPE film cargoes and would continue to restock if overseas suppliers agree to further discounts. 

“China's economy is set to improve further in the coming months, and we have high hope for the post-Labour Day period. Still, the uncertain overseas demand outlook is one of the biggest concerns. We decided to implement prudent inventory and cashflow manageable throughout 2023,” said, a trading house.