Chinese players: Local homo-PP yarn gains advantage over imports

Import and local homo-PP yarn market in China has been moving in the opposite direction since the beginning of the month and to this week, the price gap between the two markets has fallen to less than $20/ton, the lowest level since early September 2018.

Soft demand and persistently bloated inventories levels in the domestic ground throw prices on the downtrend for the past three consecutive weeks. Sources commented that this trend might not see any major reversal in the immediate term as buyers decided to withdraw to the sideline to wait for the new VAT rate to take effect.

“Customers are not eager to make large purchases. Inventories pressure might become bigger if this trend persists,” a trader said. As a result, several sellers informed that starting 25 March 2019, all new orders are entitled to the new VAT rate of 13% with hope to smoothen sales process ahead of the Tomb Sweeping festival.

In contrast, overseas sellers are showing little hesitation in lifting prices in light of limited availability. Couple of production issues in the Middle East and Southeast Asia curtail supply while suppliers seem to put more favour to India market, where customers are willing to accept higher offers to meet immediate production need. 

It is inevitable that Chinese buyers would prefer to buy from the local market given the minor price gap with import ground. “If we take into account the customs clearance and import duties, local cargoes would become cheaper than imports,” a converter said.

Import market might face limited upside in the near term unless local prices see a drastic rebound, sources said. At the moment, import homo-PP yarn based on CFR China term stands at $1080-1150/ton, with small deals reached at the lower end of the range. 

The market is heavily speculating on better local demand in April, following the 3% reduction in VAT rate that takes effect on 1 April 2019. “Customers might become more active in making replenishment after the Tomb Sweeping Festival to prepare for the traditional manufacturing season,” a local trader said. However, the downside remains the uncertain outcome of the trade talks between China and the USA.

On 20 March 2019, USA officials said that the country expected to keep tariffs on Chinese goods in place for a substantial period of time, even after a deal is reached, according to Wall Street Journal. Many export-oriented companies in China have been searching for new markets, some have become more active in the local ground to keep plant running following the escalated trade tension between the two countries.