Energy prices boost PE in China, but ethylene falls

Since the end of the National Day holiday in China, producers in the country have raised their PE prices due to higher crude oil and PE futures market prices.  Distributors report following along with the price hikes, but energy prices failed to spur spot ethylene prices in the region because of...

The Chinese National Day holiday officially ended last Thursday, October 8th, with markets reopening Friday.  Just as the Chinese market was returning on Friday, crude oil futures prices on NYMEX had settled higher the night before with an increase of $2.12 last Thursday to settle above $70 at $71.69/barrel and another increase in Friday's settlement of .08 cents at $71.77/barrel.

As early as Friday, a Chinese producer raised its PE prices in the Southwest part of the country, with the exception of HDPE, by CNY100-200/ton ($15-29/ton) compared to prices before October 1.  A source at the producer said the price hike was mainly due to the great increase in energy prices and futures market prices even though downstream demand was quiet. 

A packaging film producer also reported last Friday that distributors had increased offers by CNY100-200/ton that day. 

This week more sellers in China followed with price hikes on PE products.  The producer who increased prices Friday in Southwest China made a further increase of CNY100-350/ton ($15-51/ton) because of the rise in futures prices, while admitting that enquiries from customers were still limited.  Overall PE price hikes of CNY100-400/ton ($15-59/ton) were reported from China's producers, CNPC and Sinopec.  Sources at the various sales offices scattered around the country made the same comments that crude prices had risen while futures prices were also higher by around CNY200-500/ton ($29-73/ton) since the end of the holiday, encouraging them to raise their offers. 

Most commented that sales were still sluggish, but one major producer said activity was not as bad as before the holiday and they felt buyers were returning to the market starting yesterday.  A distributor in the east of China made similar comments, saying he had raised his prices by CNY200-300/ton ($29-44/ton) and he felt market sentiment and trading activity was better than the pre-holiday period.  Nevertheless, he commented, "We still do not plan to build up any stocks because we remain cautious about the outlook."  Another distributor who raised prices by CNY100-300/ton ($15-44/ton) yesterday said they were able to conclude deals at their new, higher levels and they were hoping to be able to continue selling in the days ahead, although he admitted that he does not have a lot of confidence about the future direction.

A trader echoed this sentiment commenting, "Due to the hike in local prices we plan to increase our offers by $10-20/ton since sentiment has improved and we were able to make some sales already, but we still feel the market direction is unclear and we will proceed cautiously on our next purchases."

A Chinese packaging film maker blamed higher energy and speculation for the rise in PE futures prices while he said his orders from downstream customers are limited. 

Meanwhile, the spot ethylene market saw a drop in prices at the end of last week as additional and unexpected supply out of the Middle East became available.  This overshadowed the rise in naphtha and crude oil prices, particularly since the Middle East is offering from a point of advantaged feedstocks and are not affected by last week's spike in naphtha when it moved above $600/ton in Asia early in the week.