…..quite possibly, yes, but it matters not what you say, only how you tell it
Source of picture: freelancefolder.com
By John Richardson
THIS poor mug might well have been the victim of rumours designed to move the daily price of polyethylene (PE) in China late last week.
The author of this particular post was told that the end of the peak manufacturing guaranteed, along with increased supply, guaranteed lower prices during the rest of Q4 than we have seen in this quarter to date.
Further bolstering the claim of the bears was that China would again reduce power supplies over the remaining months of this year in an effort to achieve 2010 emissions reduction targets. Power cuts in the third quarter cut into demand as plastics converters were forced to either lower operating rates or cease production altogether.
A Google news search provides plenty of support for this theory.The bulls argued for a price rally not based on fundamentals – whatever they mean these days – but rather on a story that originated in London financial markets and has now spread to polyolefin traders in Singapore and Hong Kong.
Tim Geithner, America’s treasury secretary, said in a speech last week that no country “could devalue its way to prosperity”.
This is being seen as code for “We, the US, have done a deal with the Chinese which will be announced at next month’s G20 meeting of world leaders. They will allow the Yuan to strengthen in return for which we won’t indulge in anymore quantitative easing that will drive the dollar even further down”.
If this theory gains a strong following we could see traders pile into buying commodities of all kinds priced in US dollars in order to sell these commodities in Yuan to cash-in on a later appreciation of the Chinese currency.
Remember – the object here is not to fathom markets through working out real demand.
It is instead all about moving the daily price of PE one way and then the other so those playing the Dalian Commodity Exchange, and physical markets also, can make money out of high levels of volatility.
One wonders how producers and buyers form sensible judgements.
Or maybe they will increasingly just have to accept things as they are and start directly hedging PE through the banks which, of course, are responsible for some of the increased chaos via the Dalian!
As we promised last week – and we do mean it if you can be a little more patient – in another post very soon we will list the supply factors that should, in theory, effect pricing over the remainder of this year.
For what they are worth….