Published On: Thu, Aug 11th, 2011

Plunging oil, economic outlook cause jitters among polymer players

Crude oil has been on a freefall for the past few days following the US credit rating cut, which came last weekend for the first time in history

, as per the plastics pricing service ChemOrbis. Stock and energy markets have reacted to this news with serious losses across the world this week amidst speculations that the US is headed for a renewed recession.

It was Friday when Standard and Poor’s announced downgrading the U.S. credit rating to AA+ from its top rank of AAA, arguing that the agreement about raising the debt ceiling by President Barack Obama and congressional Republicans didn’t do enough to stabilize the government’s medium-term debt dynamics. This news hit the markets as soon as trading started on Monday as it was the first time in history that the US witnessed a downgrade, triggering widespread speculations that there is a renewed recession on the way for the US while Europe is already struggling hard with the ongoing debt crisis. Stock markets have registered noticeable losses across the world whilst Wall Street had its worst day on Monday since the 2008 financial crisis, reported news agencies.

Energy markets have also been responsive to these developments. Having traded at around $95/barrel on NYMEX at the beginning of August, crude oil futures for September deliveries plunged as low as $75/barrel on Tuesday’s electronic trading.

All of these developments have found immediate reflections on polymer markets. In China, even though domestic producers held their offers unchanged at the start of the week, several distributors had already cut their PP and PE offers for their locally held cargoes seeing that trades had noticeably slowed down and buyers had stepped out of the market. In the import market, traders also decreased their prices. A weekly decrease of $20-40/ton is reported for PP while a trader reported cutting his PE offers by $20-50/ton forMiddle Eastern and Southeast Asian origins yesterday.

A similar atmosphere is in place in Southeast Asia with buyers returning to the sidelines and traders wanting to destock. A trader located in Hanoi, Vietnam said, “I have large PP stocks sitting at the warehouse and I should deplete them as soon as possible before a downturn begins.” Meanwhile, another distributor in Vietnam said he already cut his offers for locally held LDPE and LLDPE in line with the price cuts from China, adding, “I expect to see further declines in the days ahead.”  Likewise in India, two distributors reported adjusting their local offers for PVC, HDPE and LLDPE by INR1000-2000/ton ($22-45/ton) in order to spur sales yesterday. “We prefer to focus on our sales these days as our import orders are slated to arrive next week,” said one of these distributors offering PVC.

When looking at the Mediterranean markets, Turkish players do not seem to be as panicked as their Asian counterparts, as per the plastics pricing service ChemOrbis. A few distributors commented that buying interest has been suddenly dampened in recent days while buyers mostly say they want to wait for the market picture to become clearer before engaging in new purchases. Players are also raising concerns about the dollar/lira parity that has been constantly rising.

The bearishness has not made itself felt as noticeably on the Egyptian market yet, where demand was already slow due to Ramadan. However, a buyer producing raffia sacks said, “Most players are acting cautiously due to the decreases in oil prices and the US economic situation as they fear that the economic crisis of 2008 will repeat.”