Chinese PP market weighted down by falling futures market

After more than two weeks of rally, PP futures on Dalian Commodity Exchange encountered a hard correction this week, slashing CNY889/ton ($128/ton) or 60 per cent of all the gains the contract accumulated since early December. This has negatively affected the general sentiment in the spot market.

Domestic PP prices fell approximate CNY300/ton ($43/ton) in the first two trading days of the week to reach CNY9200-9800/ton ($1130-1205/ton without VAT), EXW China, cash term. However, it is reported that buying interest are diminishing with buyers suspended all purchasing activities in anticipation of seeing additional discount in the near term.

A local trader informed, “Buyers would still need to make replenishment before going off for Lunar New year holidays. Therefore, we believed that sellers would not rush to cut offers. In addition, most traders are not holding high inventories at the moment.” However, players also mentioned about the risk of futures traders re-directing their cargoes to spot market, as spot prices are now higher than futures trading.

In the import market, prices have yet to see major adjustment, however the up trend is no longer in place this week. The combination effect of falling futures prices, depreciation of local currency and softer domestic offers discourages buying interest for import material. Trader offered Saudi’s homo-PP at $1060/ton CFR China, LC AS term is complaining about difficulties they face in concluding deals this week. The source said, “We are not able to close any deals since the week begins. We think suppliers might need to concede to some discounts in order to activate pre-Chinese New Year replenishment activities.” Players are saying that if futures and local prices continue to decrease in the near term, import market might need to match the trend to attract buyers.