Backwardation in linear low density polyethylene futures on the Dalian Commodity Exchange is expected to continue in 2018 as new production capacity is set to start up in Asia and the US, market sources said Wednesday on the sidelines of the ninth annual JLC Petroleum and Petrochemical Market Trends conference.
The price structure first flipped into backwardation on September 20 and has stayed this way since, according to data from DCE.
"No one is optimistic, given the bearish macroeconomics and impending supply," a Chinese trader said in Mandarin.
"The futures prices were buoyed up recently by the rise in crude," a Chinese producer said, "but that is not fundamental and not expected to last."
January 2018 LLDPE DCE futures -- currently the most actively traded month -- rose Yuan 20/mt Tuesday to settle at Yuan 9,820/mt ex-warehouse, while the next most heavily traded months -- May and September -- both rose Yuan 25/mt to end at Yuan 9,830/mt and 9,785/mt, respectively.
February, March and April 2018 LLDPE DCE futures were settled at Yuan 9,730/mt, 9,840/mt and 9,665/mt. These prices for these interim months were based a technical calculations, as there were no trading volumes, data from the exchange showed.
Market sources view the price outlook as bearish, what with more than 1 million mt/year of production capacity expected to start up late this year and early next year in China.
CSPC's 300,000 mt/year LLDPE plant and 400,000 mt/year high density polyethylene unit in Huizhou, Guangdong, are expected to start up in Q1, S&P Global Platts reported previously.
At the same time, output from Qinghai Damei's new 300,000 mt/year HDPE/LLDPE swing plant at Xining will likely start reaching the market, with the plant is expected to start up in fourth-quarter 2017, sources have said.
In addition, around 2 million mt of new capacity has begun to start up in the US, with some volumes expected to head to Asia, sources noted.
Futures trading volumes, meantime, are expected to continue to be impacted in 2018 by China's measures to curb speculation in its futures markets, industry sources said.
The closer regulation of trading activity, including disciplinary measures, has already resulted in a fall in traded volumes of LLDPE on the exchange so far this year, sources said.
Over January-October, 104,062,052 LLDPE contracts, or 520.31 million mt, traded on DCE, down 40.98% from the same period last year, data on DCE's website showed. Each contract is 5 mt in size.
The DCE publishes information about investigations into suspicious trading activity regularly on its website. It last dealt with 22 clients banned temporarily from opening positions, it said on its website in October.
The JLC conference runs from November 15-16 in Qingdao, China.
