FocusFreight costs hit Asia, Mid-East PE,PP trade

19 July 2007 08:38  [Source: ICIS news]

By Prema Viswanathan and Chow Bee Lin

SINGAPORE (ICIS news)--Surging container freight rates have prompted Asian polymers suppliers to increasingly offer cargoes to the Middle East, Turkey and Europe on an FOB (free on board) basis instead of the more common CFR (cost and freight) term, producers and traders said on Thursday.

"I was recently offered a low density polyethylene (LDPE) cargo at $1,450/tonne FOB Malaysia and am in a dilemma whether or not to purchase it, said an Oman-based trader.

"Freight rates per 20-ft container from Malaysia to Oman have risen to $1,700 from $750 a couple of months ago. This translates into $100/tonne."

With land transportation costs, the arbitrage becomes quite unviable, he added.

The buoyant Asia-Middle East and Europe routes have drawn containers away from the intra-Asia routes, and hence tightened vessel availability and boosted freight rates in Asia, producers and traders said.

Freights for the southeast Asia-China route have also risen by $30-50/tonne from $10-30/tonne in mid-May, an Asian trader said.

Costs have almost doubled in the last two months to ship cargoes from China to the Middle East due to increased demand and a supply crunch, they added.

The main reason for the glut was the cut in export tax rebates on 1 July, which resulted in a rush to dispatch cargoes in late June, said one trader.

According to traders, an estimated 30,000 containers were stuck at Chinese ports waiting to transport polymer and finished goods to markets like the Middle East, Turkey and Europe in the next few weeks.

PVC offers from China were at $990-1,000/tonne FOB but importers in the Middle East were reluctant to commit due to the surging freight rates, Middle East traders said.

An Asian polypropylene (PP) producer said freight from Asia to Turkey has risen to $150/tonne, from $105/tonne about a month ago, and hence it was offering material to Turkey on an FOB basis.

"We used to be able to book a container with four to five days’ notice but now we need two weeks," he added.

In India, a supplier said increasing freight rates to Turkey had prompted it to raise offers of high impact polystyrene (HIPS) to customers to $1,600-1,650/tonne CFR.

"Freight rates from India to Turkey have risen in July to $75-80/tonne from only $50-55/tonne in June, so we have no option but to raise our offers," he added.

A Dubai-based trader said he had been offered a high density PE (HDPE) film cargo from Thailand at $1,350/tonne FOB.

"At $2,200/20ft container, which translates into $150/tonne, the [delivered] price is too high," he said. However, he was worried that if he waited too long, he may not find cargoes as HDPE film has been in short supply in recent weeks.

LDPE inventory was also low in the Middle East, the Oman-based trader said.

"A few end-users whose inventory levels have touched rock bottom are willing to pay any price for cargoes," he added.

Major Asian polymer producers include LG Chem, Formosa Plastics Corp, Supreme Petrochemicals, Reliance Industries, Petlin, Titan Chemicals and Asahimas Chemicals.

By: Prema Viswanathan
+65 6780 4359

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