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Analysis: China PE prices hit 11-month lows on weak demand

http://www.chemnet.com   May 16,2017 Platts
Polyethylene import prices in China have hit 11-month lows because of weak demand resulting from a multitude of factors, market sources said on Monday, prior to the opening of ChinaPlast, which runs from Tuesday to Friday in Guangzhou, China.

The bearish reasons listed by market participants include higher interest rates, slow economic growth, higher domestic production in China, less debt lending, a weak Chinese currency, low futures trading volumes, high import volumes, and new global capacities.

Linear low-density polyethylene import prices, at $1,115/mt CFR Far East Asia as assessed on May 12, were at its lowest seen since June 2016, according to S&P Global Platts data.

The domestic Chinese market saw abundant supply from both local and overseas suppliers. PE imports in first-quarter 2017 rose 25.66% from Q1 2016 to 3,051,275 mt, according to China import statistics.

This was a result of new global suppliers in 2017, with a total capacity of 5-6 million mt/year, all targeting China as a key import market, traders said,

Domestic PE production in China in Q1 2017 also rose to around 4 million mt, an increase of "probably around 10%" from that in Q1 2016, traders said. This led to the current high PE inventories at ports, estimated at around 500,000 mt, according to traders.

"Although [inventories] had fallen from the all-time high of 1 million mt seen in February, it is still at a multi-year high," a Chinese trader said.

Moreover, continued weakness in the Chinese curreny, at Yuan 6.9 against the US dollar -- a nine-year low -- made imported resin unattractive, sources said.

The bearishness in China's Dalian futures, which showed a year-on-year fall of 59.23% in January-April volumes traded, also led to the bearish buying sentiment, traders added.

Decreased money supply had led to soft Chinese demand to boot, sources added. China's efforts to tackle excessive lending have led to incraese in interest rates.

As of May 15, the Shanghai Interbank Offered Rate, or Shibor, lending rates for three and six months increased 96 and 44 basis points to 4.4184% and 4.3996%, respectively, while one-month interest rates fell 6 basis points at 4.0462%.

The weekly interest rates are updated every Monday at 11.00 am on the People's Bank of China website.

On top of this, a weaker 2017 gross domestic product has also lessened demand for polyethylene, since PE is heavily linked to consumption, industry sources said.

China's GDP is expected to be 6.5% in 2017, 0.2% lower than 2016's, as Chinese premier Li Keqiang had earlier announced.
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