By John Richardson
ASIAN polyolefin traders have little else to do apart from betting on the Euro 2012 soccer championships because of dismal demand, said a Singapore-based trader.
“This is the worst I can remember in 10 years in this business, and it is definitely now worse than in 2008,” he added
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“The shock of 2008 was more sudden, more dramatic, but more short-lived. What we have seen in 2011-2012 has been longer periods of depressed demand where prices have been flat or declining, with very brief periods of recovery. These recoveries have followed improvements in equity markets and crude oil.
“Take the last few days as an example. Last Friday morning, after China had announced its 25 basis points cut in interest rates, the Dalian Commodity Exchange rallied and there was a slight uptick in interest for physical cargoes.”
(The Dalian Commodity Exchange operates a futures contract in linear low-density polyethylene).
“But by the afternoon, people were asking themselves ‘will the interest rate cut make that much of a difference?’ They decided no, and so the Dalian retreated again and what appetite there was for acquiring physical cargoes disappeared.
“On Monday this week, the recovery at least lasted all day, thanks to the rescue package for the Spanish banks. But on Tuesday, the futures and physical markets fell back again.
“The problem is that there is absolutely no visibility out there – nobody knows when the market will bottom out, and nobody is prepared to take any risks.”
During 2011, lack of liquidity held the market back as the Chinese government increased bank-reserve requirements and raised interest rates, he added.
This forced polyolefin buyers to either cut back on activity or turn to the shadow-banking system, where they paid very high interest rates.
“Over the last couple of months there has been a very significant sea change,” the trader added.
“Our customers no longer want to borrow money, even though financing is more available and cheaper. There is no demand out there, so why would they borrow money?”
The market was so bad that the prospect of new supply, from start-ups in Saudi Arabia, Qatar and Singapore, had not caused panic, he added.
“The attitude towards this new supply is, ‘bring it on because it, surely, cannot make the demand any worse.’ “