Production Cuts in Response to Financial Crisis-Chinese Polyolefin Suppliers’ Changes in Business Concept and Patterns

Chinese polyolefin market reversed its several-month-long upward journey and nosedived in June 2008, mounting local inventories and arousing panics. August saw no stoppage in the price fall with inventories approaching a peak. Accordingly, Chinese polyolefin market is described vividly as ‘Quake Lake’.

In face of the severe situation, Sinopec was the first to cut output by around 20% in September. However, prices continued to plunge before the end of October due to quite weak demand and almost spilled inventories. In November, domestic polyolefin inventories were being eased but producers kept reducing operating rates. Local prices fluctuated in a narrow range.

It may not be a big deal for Korean, Thailand, American or European producers to cut 20% of their output, but the move is very meaningful for Chinese manufacturers as it is a symbol for Chinese petrochemical product price marketizing.

Polyolefin Industrial Reshuffle As Attacked by Financial Crisis

The global economy is deteriorating and the dominos do fall from US and Europe to Asia and even China. Bubbles and hidden danger in economic communities at all levels burst. For PP and PE markets, panic sentiment and tight credit are two fatal factors.

PP and PE products are mainly used as industrial and daily-use goods. Current lack of consumer confidence amid the economic recession has negative impact on demand for PP and PE and thus export orders to America and Europe decreased sharply, including orders for apparel, daily-use goods, toys and home appliances.

Compared with March-April, PE and PE prices lost 60-70% in July, brining traders into credit tightness and poor sales. Some suppliers could not take measures immediately and began cutting output in August-September. Inventories were eased in October. Downstream processors lost large numbers of orders and as the Butterfly Effect, some PE and PP producers announced bankruptcy.

As attacked by the severe financial crisis, the whole polyolefin industry is forced to reshuffle. In a long run, the whole industry will have a sustainable development as companies with low added value and nonstandard manipulation will be driven out of the market.