several more bottles of beer than we
normally do, but how often can an
individual do that in a year?’ a
Chinese polyolefins trader asks,
aptly summarising the general consumer
sentiment.
The home appliance subsidy
scheme has had limited impact on the
local electronics and electrical
application sectors, benefiting mainly
the big companies, says a plastics
processor in Shunde city, Guangdong
province in southern China.
The scheme applies only to large
home appliances such as televisions,
refrigerators and washing machines,
and these product segments are
mainly dominated by the 10 or more
large-scale manufacturers in China
such as Meidi and Kelon.
The small- and medium-scale
home appliance manufacturers which
make smaller items such as dish
washers, toasters, fans and kitchen
ventilators do not benefit from the
scheme, although they make up a
large part of the local electronics and
electrical industry, he says.
Shunde is a major home appliance
production base in China with a few
thousand small- and medium-scale
home appliance manufacturers, more
than 10 large-scale manufacturers
and over 6000 manufacturers that
make related components from
plastics and other raw materials.
Local consumption in Tianjin city
in northern China has not shown
signs of improving either, says a
source at the Tianjin Plastics
Industry Association. ‘Dwindling
local and exports demand has hit the
electronics, IT, automotive and packaging
application sectors.’
The food packaging sector is
weathering the global downturn better
compared with other types of
strategic
packaging segment, but is too small
to support the overall demand for
raw materials such as plastic resins.
A foreign manufacturer of industrial
packaging material such as
diesel oil containers has registered a
60% fall in local orders in the first
quarter this year, compared with the
same period last year, he adds.
The government stimulus plans
CoNTINUED 0N PAGE 26 GETTY IMAGES
A leadership stance in polymers
� The influence of Chinese producers
over the price of domestic polyolefins
attracted very little attention from the
outside world until around June last
year, when domestic prices started gaining
huge premiums over import prices.
Locally produced polyolefins had
for the preceding decade been mostly
trading below the import parity levels,
typically at a differential of US$100/
tonne or more. But domestic prices rose
to such high levels around the middle
of last year that imported material
became competitive in the domestic
market, even after adding on the import
duties and value added tax.
Prior to that, locally produced and
imported resins were mostly catering
to separate markets – local product
for processors who sell their finished
goods in the local market, and imported
resins for processors who export their
finished goods and who are also known
as export-oriented processors. But the
higher domestic prices allowed foreign
suppliers to tap into the domestic
market segment.
As domestic production accounts for
around 60% and 70% of China’s local
PE and PP demand, respectively, the
emergence of Chinese price leadership
was generally seen as inevitable,
according to Chinese traders.
Foreign suppliers are expected to
come under increasing pressure to
align with China’s domestic pricing in
the near future because, in the wake
of the financial crisis, they have found
themselves competing with the Chinese
producers for the same market segment
– local plastics processors who cater to
domestic consumption.
Resin demand from foreign suppliers’
traditional customer base – the exportoriented
processors – has been dwindling
due to falling Chinese exports,
including for plastic finished goods.
‘We’ve to look at the domestic prices
in China before setting our prices,’ a
northeast Asian producer says, referring
to its offer prices for March shipment.
Furthermore, as global competition
for a share of the China market intensifies
with the surge in new Middle East
capacities, most Asian and Middle East
exporters are likely to price their product
at levels equivalent to or just below
that of locally produced material, a view
expressed by two Asian resin producers
and one international resin supplier.
Hence, to this extent, the Chinese suppliers
will be providing some sort of
pricing leadership in future, they add.
However, producer pricing is only one
of the many factors that shape the market.
Past experience has shown that demandsupply
balance is still the key price driver,
a source at Chinese trading company
Sinochem International explains.
‘Despite their efforts to stabilise
the market, Chinese producers were
forced to slash prices from early July
last year as their inventories were piling
up due to weak demand,’ says the
Sinochem source. ‘PE and PP prices had
fallen by 20% by the time the global
financial system collapsed with the fall
of the Lehman Brothers at the end of
September.’
The fall in domestic demand saw the
workforce at this plastics packaging
and parts factory in Guangdong
reduced by 90% in December 2008
Prepared for APIC 2009 by The Chemical Daily and ICIS 25
issues
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