Asian PE prices to fall in Q2 on higher supply, low C2 costs

03 April 2005 08:35  [Source: ICIS news]

SINGAPORE (CNI)--Asian polyethylene (PE) prices are expected to soften a little in the second quarter of 2005 on the back of an expected easing of supply, producers and traders told CNI.

 

Softening ethylene costs could also exert a downward pressure on prices, they added.

 

However, opinion was divided on price projections for the second half of the year. Some producers and traders expect demand to strengthen in the second half, especially from China’s packaging and agriculture sectors, leading to a rise in prices.

 

Demand from China, the biggest consumer of PE in Asia, is expected to rise by 6% in 2005 from 2004, according to Sinodata Consulting.

 

However, other market players said that prices would continue to soften due to oversupply and dipping ethylene costs.

 

A spate of turnarounds in Asia in the second quarter will not help prop up PE prices. This is because the volume lost will be less than the combined new capacity from Shanghai Secco Petrochemical's (Secco) plant, which is already on stream, and BASF Yangzi Petrochemical Co (BASF YPC)’s plant which will come onstream in the second quarter, said a trader.

 

"In fact, prices would have already begun to fall, had Secco begun to operate its plant at full capacity," the trader added.

 

A second trader said that the price of high-density PE (hdPE) was not likely to rise beyond $1,140/tonne CFR China.

 

Prices stayed up in January, ahead of the Lunar New Year holidays, for the second year running, due to strong demand. However, they fell in Feb and early March as Chinese buyers were slow in returning to the market.

 

But March has seen a slight buoyancy in prices as inventories of export-oriented converters began to get depleted. However, traders expect prices of low-density PE (ldPE) to soften in April in a long overdue market correction to shrink the unrealistically wide gap between ldPE and other PE grades.

 

Chinese import demand has been weakening in recent weeks due to high inventories, low domestic prices and uncertainties ahead of the Secco and BASF YPC startups.

 

China imported less PE in January and February this year than in the same period last year. The slowdown was attributed to market panic due the steep price fall in December 2004.

 

According to consultants margins are expected to continue improving this year for PE players thanks to firming PE and falling ethylene costs.

 

The improved margins - a relief after the negative margins experienced in January and March prompted several integrated producers, such as Indonesia’s Chandra Asri, South Korea’s Korea Petrochemical Industry Co (KPIC) and Malaysia's Titan Chemicals to ramp up their PE operating rates and cut their ethylene exports.

 

Several turnarounds should bring some balance to the situation.

 

Indonesia's Chandra Asri was to have started a month-long shutdown of its 100,000 tonne/year hdPE unit from 1 April and in Saudi Arabia, Sharq was to have started a five-day shut down of its 750,000 tonne/year lldPE plant in Al-Jubail in end March. Japan’s Tosoh Corp was also to have shut its PE plants for a turnaround. 

By: Prema Viswanathan
+65 6780 4359

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