Published On: Wed, Apr 3rd, 2013

Will crude help PE prices remain stable in China?

Will crude help PE prices remain stable in China?

Will crude help PE prices remain stable in China?

Steadily rising crude oil prices have helped PE prices stabilize in China’s PE market for the past two weeks after sharp decreases were seen for a couple of weeks in a row, as seen from the image below prepared by ChemOrbis Price Wizard. Crude oil futures on NYMEX traded above the $97/barrel threshold as of early this week while prices stood at $90/barrel on average a month ago.

The downward trend in import HDPE and LLDPE film prices to China was suspended in response to the jump in crude oil prices. Soaring energy costs helped Chinese producers take a firmer stance in the domestic market, as well. A month long downturn in Asian spot ethylene prices also stopped two weeks ago, which was partly in response to the soaring energy costs. Since then, spot ethylene has posted modest gains in Asia. The lower operating rates of cracker operators also played a role in these weekly gains.

Players are now wondering if PE prices will remain stable over the near term, continuing to find support from energy costs. Demand is not encouraging in the Chinese market with many sellers admitting having little confidence in the market outlook. They are mostly ready to give discounts for firm bids in an attempt to entice sales.

A Shanghai based trader said, “We believe that PE prices still have room to move down further. Even if PE prices pare earlier losses in April, they may not stay firm as demand is quite sluggish.” Another trader pointed to the retreating LLDPE futures in China. Plus, the expected start-up of Exxon’s huge cracker with a capacity of 1.3 million tons per year in Singapore is weighing down on the sentiment according to ChemOrbis.

Meanwhile, crude oil futures were down to around $96/barrel on Tuesday on speculation a report will show that US crude supplies rose to the highest level in more than 22 years before moving back above $97/barrel at the end of the day.