Stronger futures trading revived activities in China PP market

Since the week starts, PP futures on Dalian Commodity Exchange has surged CNY1006/ton ($146/ton) for May delivery contract, which heat up trading activities in the spot ground. Despite offers in both local and import market are not firming up in the same pace with futures trading, purchasing activities improved visibly.

In fact, private data showed a drop of near to 100,000 tons in local PP and PE inventories at major producer’s warehouses just for first two trading sessions of this week; which prompt domestic producers to withdraw their prices, claiming sold out. A trader said, “We lifted our homo-PP offers by CNY200/ton ($29/ton) and still managed to sell very well in spite of weaker energy values. Futures PP market might continue to increase in the near term thanks to the capital in-flow, that means spot market would remain healthy this week.”

Buyers have also accepted higher import offers with most deals are reported in the range of $1030-1040/ton CFR China, LC 0-90 days term, which is $20-30/ton increased from last week. A trader lifted USA homo-PP to $1030-1040/ton CFR China, LC 90 days term said, “The acceptance amongst buyers is good. We think PP market is here to rebound.”

Such rapid hike in PP futures prices has created a gap of approximate CNY365/ton ($53/ton) with the spot market, and this acts as an arbitrage opportunity for domestic traders. This explains to why most cargoes takers these three days are traders, who are active in dealing with both futures and spot market. This, however, raises question about the sustainability of the current trend as demand from converters see little improvement. Players might discuss this issue slightly later; at the moment, all eyes are on the firmer trend in the immediate term.