China petrochemical futures rally on fresh economic measures

SINGAPORE (ICIS)–China’s petrochemical futures markets surged on Tuesday following announcement of fresh measures to rev up activity in the world’s second-biggest economy.

As the close of trade on Tuesday, polyvinyl chloride (PVC) was leading the charge in China’s domestic futures market, with a 3.3% increase, with seven others also posting strong gains.

Product	Prices at close of trade (CNY/tonne)	% change from 23 Sept
Linear low density polyethylene (LLDPE)	7,969	1.2%
Polyvinyl chloride (PVC)	5,388	3.3%
Ethylene glycol (EG)	4,459	1.9%
Polypropylene (PP)	7,360	1.4%
Styrene monomer (SM)	8,559	0.7%
Paraxylene *	7,012	2.4%
Purified terephthalic acid (PTA)*	4,930	2.2%
Methanol*	2,396	1.6%

Sources: Dalian Commodity Exchange, *Zhengzhou Commodity Exchange

Shares of major Chinese chemical producers traded in Shanghai and Shenzhen bourses also increased, welcoming the central bank’s economic measures.

Company	Closing prices on 24 September (CNY/share)	% change from 23 Sept
Hengli Petrochemical	13.12	5.4%
PetroChina	8.36	4.4%
Rongsheng* Petrochemical	8.84	4.1%
Satellite Chemical*	16.08	7.7%
Sinopec	6.76	4.3%
Wanhua Chemical	78.96	4.4%

Sources: Shanghai and *Shenzhen bourses

The Shanghai composite index surged by 4.15% to close at 2,863 on Tuesday. It was the index’s biggest single-day rally since 6 July 2020.

People’s Bank of China (PBoC) governor Pan Gongsheng announced in a press conference the new economic measures, which include cuts on banks’ reserve requirement ratio (RRR), key policy rate and mortgage rates to revive the economy.

China’s economic weakness has been a major drag on overall sentiment across the equities and commodities markets this year.

“The move [basket of stimulus by China’s central bank] is bold by historical standards and came earlier than we had expected,” said Betty Wang, lead economist at UK-based Oxford Economics, in a research note on Tuesday.

“The policy measures include cuts to the policy rate and reserve requirement ratio (RRR), adjustment to mortgage lending and policy support to stock market,” Wang said.

“The continuous weakness in domestic economy and the outsized rate cut from the [US] Federal Reserve were the likely catalysts behind the PBoC’s latest move,” the economist said.

This is the first time since the COVID-19 pandemic that the central bank offered a combination of rate cuts, RRR cuts, and structural monetary policies as stimulus measures.

A 20-basis point (bps) interest rate cut in the 7-day reverse repurchase (repo) rate and a broad-based 50bps RRR cut are also rare, Oxford Economics noted.

Focus article by Fanny Zhang

($1 = CNY7.04)

Thumbnail image: At a container terminal at Lianyungang Port in east China’s Jiangsu Province, 18 September 2024. (Shutterstock)