Local PP, PE supply in China to remain tight on plant shutdown

Chinese players have been discussing about a possible price correction for both spot PP and PE in domestic market, as futures contract number 1709 is due for delivery within the first 10 days of September.

It is reported that the registered warehouse receipts for September contract has reached nearly 4000 lots (1 lot = 5 tons) for LLDPE alone. Meaning to say that there is an approximate 20,000 tons of LLDPE will be dispensed to the market in the coming weeks. While the concern appears to be heavy, some of the weights are taken away on news that several local coal based polyolefins plants shall go off-line due to coal supply shortage.

These plants are listed in the following table:      

The situation arrived as Chinese government aggressively eliminating outdated and inefficient coal capacities while also implemented the ban of coal imports at more than 150 second tiers port. These shutdowns therefore overturn market concern of a possible down trend, instead strengthening belief that tight availability is there to persist and that market might remains on the firm track longer than expected. In fact, with four known shutdowns, domestic China market is estimated to loose more than 120,000 tons of PP and 51,000 tons of PE – much larger than the futures contract delivery.

A trader commented, “We are very confident about September market outlook, not only with limited supply from domestic suppliers but also lack of cargoes from overseas sellers. The traditional high demand season is set to start soon, and thus firmer prices become inevitable.”

Other sources also added that several petrochemical plants declared force majeure in the USA due to a tropical storm could curtail the number of cargoes flowing to China as it traditionally took place during quarter 4 of the year. In this event, other suppliers might have more support to maintain firm stance on their cargoes.