Polymer traders are seeking ways to spur trading activity in the face of tightening credit and cashflow in China, with sellers increasingly agreeing to credit terms of up to 90 days, market participants said this week.
"There are more traders offering credit terms of 90-day Letters of Credit, mainly due to the tight cashflow situation," a Chinese trader said.
Polymers are generally sold on a LC at sight basis, where sellers are able to collect their money when cargoes are delivered to buyers.
But there has been a growing trend for traders to give in to buyer requests for LC 90 days.
"More buyers have been asking," another Chinese trader said.
Sellers typically add a premium of $15/mt if a cargo is sold with LC 90 days credit terms.
"This is good for traders as well, because we can use it as a negotiating tool to fetch a higher price," said a Japanese trader, who noted that even buyers of smaller parcels were asking for such payment terms.
Market participants say the extended credit is a win-win situation for both buyers and sellers, as the Yuan is expected to continue rising against the US dollar.
"International sellers can benefit from the rising Yuan when they collect their money 90 days down the road," a Japanese trader said.
Buyers can also take advantage of a lower exchange rate by buying ahead of time.
One market source also noted that as a result of these credit terms, some market participants are able to raise cash to be used for other investment purposes, including the property market.
Chinese market participants have typically used petrochemical products such as monoethylene glycol and purified terephthalic acid to raise cash, as liquidity tightened. But products like MEG require specialized storage tanks and, as such, polymers are becoming a more viable option.
"You don't need to rent expensive tank space for PE or PP," the Japanese trader said.
