2010-02-05 [Source: icis]

SINGAPORE--Petrochemicals trade in China has entered a lull period ahead of Lunar New Year celebrations, but it may spring back to life with a roar – befitting the year of the tiger in the Chinese zodiac, industry sources said on Thursday.

However, taming the expectation is a spate of trade barriers in the form of antidumping duties currently in the works in China, as well as the credit tightening measures implemented by its government, traders and analysts said.

Regional players across the base oils, polymers, methanol and elastomers markets share the mixed sentiment.

The Chinese market would be closed for business on 15-19 February to celebrate the Lunar New Year, when China will switch from the year of the ox to the year of the tiger.

An ox is associated with hard work and stability while the tiger is characterized by bravery, aggression and unpredictability.

"The [Chinese] year of the tiger is true to its name and [would] bring about short-term trends," said a methanol distributor in China.

"You can always expect some traders to be as brave and quick-moving as [a] tiger in speculating where prices will go and hence turbulence is almost guaranteed," he added.

China has been on holiday mode for the past two weeks, which saw prices of select petrochemical products in Asia heading downhill in the absence of a major demand, market sources said.

Towards late February, the market activities would pick up, analysts said.

"After the holidays, demand will gradually turn better as the spring [February to May] is a peak season for some chemical downstream sectors, like fertilizers," said Wang Huiqin, a Beijing-based analyst at consultancy firm TX Investment.

Restocking would drive up demand post the holidays, market sources said, citing that most players refrained from building up stocks even after their inventories had whittled down to a minimum due to prevailing strong values.

"Prices are just too high now. We don't want to replenish inventories although stocks are very low," said a polyolefin end-user based in southern China.

"Buyers now are all waiting for prices to slide further down before taking action," said a source with PetroChina, a major state-owned petrochemical company.

Other market players, meanwhile, expect the price weakness to be temporary and could reverse soon, helped by the firming up of crude future prices, which were hovering at $76-77/bbl levels on Thursday.

"Much of the buying in China has been among traders and end users still hold rather low inventories. So we expect prices to rise again when they return to the market to buy after the holidays," said an Indian PE end user.

China, the world's third largest economy, is the biggest consumer of petrochemicals in Asia, providing it with the power to single-handedly influence product prices, like what happened in 2009.

The start of the calendar year 2010 witnessed an extension of the bullish trend late last year as China continued to stock up on materials for production, upbeat on the return of end-user demand. Exports demand should improve this year, in line with the gradual recovery of the global economy from recession, analysts said.

"Chemical consumption in different industries will increase, I am very optimistic," said Xu Chao, a Shanghai-based analyst at Shanghai-based brokerage house Dalu Futures.

In the styrene butadiene rubber (SBR) market, demand is expected to pick in March in conjunction with the ramping up of operating rates at tyre plants in China, said a South Korean SBR producer.

But new capacities coming up in China are a constant source of concern for regional producers as this translates to lesser import demand from a key market.

A host of antidumping duties (ADD) the country had implemented – the latest of which is on purified terephthalic acid (PTA) imports from South Korea and Thailand – may also have serious repercussions on trade, industry sources said.