04 January 2007 04:05 [Source: ICIS news]By Prema Viswanathan
SINGAPORE (ICIS news)--Middle East demand for polyethylene (PE) and polypropylene (PP) was expected to be robust in 2007, driven by slightly easier availability and relatively stable prices, producers, traders and end-users said recently.
However, one overriding concern continued to haunt all market players – geopolitics.
Demand for PE and PP in 2007 was estimated to grow year-on-year by up to 6% across the region, suppliers and traders said, with some end-users forecasting a more conservative demand growth rate of 5%.
Nevertheless, some regional variations could be seen. For instance, polyolefins consumption in Iran was projected by most suppliers and traders in the region to rise by a mere 4-5% in 2007, if trade continued to be constrained by United Nations (UN) sanctions over the country’s nuclear programme.
However, state-owned petrochemical major Iran Petrochemical Commercial Co thinks this forecast is conservative.
In Egypt, on the other hand, demand growth for PE and PP was forecast to rise by 7% in 2007, on strong consumption in the packaging and pipes segments.
In 2006, demand for PE and PP was estimated to have grown at a slower pace of 4-5% across the Middle East as buying activity slowed due to limited availability and surging prices. The armed conflict in Lebanon and the ongoing civil strife in Iraq also dampened demand.
But customers believed that the allocation cuts imposed by regional suppliers in 2006 due to supply constraints might not recur in 2007.
"Although some maintenance turnarounds are expected in the early part of the year, there will be sufficient new capacities, especially in Iran, which will ensure that the tight supply situation seen in 2006 does not extend into next year," a Dubai-based trader said.
Two major Middle East producers were expected to shut down their plants for maintenance for two-four weeks in the first half of 2007, although this could not be confirmed with the companies.
A third, Oman Polypropylene, has confirmed that it will shut its 340,000 tonne/year PP plant in February for two weeks.
However, the consequent reduction in output would be offset by a slew of new capacities set to go on stream in 2007 in Iran, all deferred from 2006.
These include Jam Petrochemical’s 300,000 tonne/year high density PE (HDPE)/linear low density PE (LLDPE), 300,000 tonne/year HDPE and 300,000 tonne/year PP plants due to start up in the second half of 2007.
Also due on stream in the first half of next year are Arya Sasol’s 300,000 tonne/year LDPE and 300,000 tonne/year medium density PE (MDPE)/HDPE plants.
In addition to these projects at Assaluyeh, 2007 will also see some new capacities at Bandar Imam. These include Amir Kabir’s 300,000 tonne/year LDPE plant and Marun Petrochemical’s HDPE and PP plants at 300,000 tonne/year each, which were shut after its abortive startup in October due to technical problems.
Even if the Iranian projects were delayed further to 2008, supply constraints were unlikely to be as severe in 2007 as they have been in the past year.
Other companies which will expand their PP output in 2007 include Iran’s Arak Petrochemical and Israel’s Carmel Olefins. Arak is to increase its capacity by 25% to 83,000 tonnes/year in mid-2007 while Carmel Olefins will double its capacity in the first quarter to 400,000 tonnes/year.
Suppliers also believed that PE and PP prices, which surged to 13-year highs of up to $1,500/tonne CFR (cost and freight) Middle East in 2006 on rocketing crude and feedstock costs, would stabilise at more acceptable levels next year.
"I think polyolefins prices will hover within the $1,250-1,350/tonne CFR Middle East range in the coming year. This will make it easier for the downstream players to pass on the higher costs to their own customers," a major regional supplier said.
Consumption is also expected to get a boost in the Middle East with Iraqi converters relocating to neighbouring countries such as Syria and Jordan.
"The worsening political conflict in Iraq has severely hit polymer consumption in the country and our exports to Iraq have gone down sharply, a Jordan-based trader said.
"But we expect this to be compensated in 2007 [as] Iraqi converters ramp up their production at their new locations."
Also denting demand in 2006 was the stock market crash in the Middle East, especially in the Gulf Cooperation Council (GCC) member states.
Several end-users who have invested in shares during the five-year boom were licking their wounds early last year when the overheated stock markets in the region dived.
However, state intervention has resulted in a slight pickup in stock market values in Saudi Arabia and the United Arab Emirates.
A significant boost to regional market sentiment was the recent economic recovery in Turkey, an important market for Middle East producers, after the currency crisis in August which sent demand and prices diving.
Buying activity has been picking up in Turkey in the last three months, fuelling optimism among suppliers in the Middle East.
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