Chinese players: Domestic PE, PP demand picks up slower than expected

The post holiday demand in China has been weak since players returned to their desks earlier last week. Initial expectation is that buying interest would pick up after the Lantern Festival, as converters need time to recover the workforce. However, two days after buyers resume working, there is still little sign of an improvement in term of trading activities.

Suppliers in the country are reporting of high inventories levels at most major warehouses, especially in the eastern China area. This is a result of continuous import cargoes arrival and steady local production throughout the holidays, while demand delayed to come back.

A trader commented, “Instead of replenishing material, our customers are still holding the wait and see stance despite low inventory. We hope the demand just got delayed and would return in the coming weeks.”

Another trader added, “We were holding our cargoes with hope that buying interest shall improve with the return of buyers. Yet, our customers continue to source hand to mouth basis. This does appear to be very alarming to us.”

In fact, couple of warehouse and logistics companies has sent out notices to their respective clients, informing about their inability to accept any additional cargo storage requests due to out of warehouse space. Even domestic producers are facing similar issues. A PP maker in Ningbo said, “Many of our customers refused to collect the cargoes and we have extended the due date to 20 February. Any further delay, warehouse charges will be applicable. We might also need to adjust production plan due to lack of storage.”

In general, the number of transaction for PP in local market is still better than PE, players said, as traders gain more margins directing PP cargoes from spot to futures market. A trader in Northern China commented, “The mulch film season is at the peak now, and we were expecting higher operating rate at converter’s side. However, purchasing activities are really disappointed as buyers are complaining about thin profit margins.”

With such sluggish condition in domestic market, players are seeing very limited room for international suppliers to achieve full hike target on their parcel. For this, an Middle Eastern PE producer said, “We are diverting most of out allocation to Europe market these few weeks since Asian buyers are not interested in the high prices.”