PE CFR China market have been kept in narrow range-bound for a long period, and we have earlier predicted that the market may rebound before the Spring Festival. Now, it surely moves higher. However, it鈥檚 not pulled up by fundamentals, but stimulated by the conflict between the United States and Iraq.
Early last week, crude oil have risen up due to tensions in the Middle East, which have further boosted the PE CFR China market. However, the tensions have been soon eased on account of Trump's speech, crude oil tumbles and PP futures fall down. The overall market appears weak. From the current point of view, the market is likely to return to consolidation. Although it鈥檚 difficult to rise further, it鈥檚 not easy to fall.
The difficulty of rising lies in:
1. With the Spring Festival approaching, the upstream and downstream market are in a stable mood.
With two weeks left before the Spring Festival holiday, most small and medium-sized plants have been basically off for the holiday, while main plants are still holding on to their posts. However, the holiday atmosphere is relatively strong currently and the pre-holiday restocking have been finished in the earlier stage. Trading in the next two weeks would fall sharply, coupled with the fact that most of the market source would be shipped after the Spring Festival. Market trend is extremely unstable, the overall price would be fluctuated narrowly including offers and bids.
2. RMB market is in consolidation.
Judging from the trend of the RMB market, with the Spring Festival drawing near, more downstream market are away for the holiday and trading pressure of traders is not heavy. Market price would wave narrowly recently, and price spread between RMB market and PE CFR China market would basically be controlled within the normal level, which also plays a stabilizing role for the PE CFR China market.
The difficulty of falling lies in:
1. Instability in the Middle East.
The situation in the Middle East has been relatively tense, and has been intensified recently by the conflict between the United States and Iraq. Although Trump's speech have eased the situation, the international political conflict is not so easy to resolve and there is still a long way to go. At the same time, political problems could not only affect output, but also affect logistics transportation. Moreover, there is about 50% of China's PE imports comes from the Middle East, so the subsequent supply in the Middle East is unstable.
2. Many foreign plants shut for maintenance intensively.
At present, it鈥檚 heard that PTT has extended its maintenance period to February. In addition, Qatar is running its plants at relatively low operating rate and plans to shut for maintenance, and some plants in the Middle East also have further maintenance schedules. On the whole, foreign supply is expected to be tight, so trading pressure of foreign traders is relatively low. Market mindset is strong, and traders are not willing to sell goods at low-price to China. Therefore, some suppliers offer higher gradually since the end of December. As the costs of traders rise, traders have no intention to sell at low price and high-price offers will gradually increase.
To sum up, the rise of the PE CFR China market is just a flash in the pan. With the Spring Festival gradually approaching, market would remain in consolidation. Although some plants would shut for turnaround after the holiday, domestic new plants would also be put into production. Therefore, PE CFR China market is likely to maintain in consolidation for a long time.