FocusMiddle East polymers to continue bull run

30 August 2007 08:57  [Source: ICIS news]

By Prema Viswanathan

SINGAPORE (ICIS news)--Middle East polymer markets are expected to remain bullish until early next year on tight supply and strong demand, even as converters take a hit on margins, suppliers, traders and end-users said on Thursday.

 “Supply is so tight and demand so robust that we don’t expect prices to come down until the first quarter of 2008, when supply is expected to ease a little,” a supplier said.

Markets were expected to remain active even during the month-long Ramadan break starting in mid-September, which is traditionally a weaker demand season.

Prices of polyethylene (PE), polypropylene (PP), polystyrene (PS) and polyvinyl chloride (PVC) hit record highs in August on extremely limited availability and robust demand. Low customer inventories and a 60-70% cut in allocations by a major regional supplier left end-users with little bargaining power, said a buyer.

While larger converters in the region tried to pass on the polymer costs through contract agreements with their customers and by increasing their exports to high-priced markets such as Europe, smaller converters faced a margins squeeze, said a second end-user.

“We may see more consolidation in the coming year in the plastics processing industry if this high price trend continues,” the end-user added.

Low density polyethylene (LDPE) experienced the sharpest hike of $100/tonne for September shipments, due to severe supply constraints caused by the diversion of cargoes to more lucrative destinations such as Europe and Africa, a trader said.

A regional producer raised its offers this week for high density PE (HDPE) and linear low density PE (LLDPE) in the Middle East by $30-40/tonne for September cargoes from August levels, which were accepted by the market. Traders and end-users in the Middle East said they were scrambling for material, as their allocations had been reduced to 30% for September.

PP prices have also firmed by $10/tonne this week but supply was a little less tight than for PE. However, strong demand from the packaging and construction segments for film and raffia grades and from the automotive parts sector for copolymer grade caused suppliers and traders to project a positive price outlook for the coming months.

PVC prices in the Middle East had also been on an uptrend for the past few months, surging by $50/tonne in the last week alone on the back of high freight, tight availability and strong demand, suppliers and traders said. The main demand drivers have been the region’s booming construction and water supply and sanitation sectors.

PS prices have remained stable in the Middle East for the past few weeks but demand from the refrigerator, electronics and packaging sectors continued to be strong, traders and end-users said.

The bullish outlook for the rest of 2007 is based on persistently snug supply. Although some new capacities are expected to go on stream in the fourth quarter of 2007 - Arya Sasol’s and Jam Petrochemical’s PE projects in Iran and Natpet’s PP project in Saudi Arabia - their impact is expected to be felt in the market only by the first quarter of 2008, suppliers and traders said.

“Availability in the Middle East is not expected to be anywhere near adequate for the next few months, as the region’s suppliers have committed their cargoes to Europe, where outages have severely reduced supply,” said a trader.

And in the case of PVC and PS, shortfalls will persist for more than a year, as no major new capacities are expected to start up until 2009, except the doubling of PVC capacity by Abadan Petrochemical this year to 130,000 tonnes/year in Iran.

Major polymer producers in the region include Saudi Basic Industries Corp (SABIC), Saudi Polyolefins Co, Kuwait’s EQUATE, Qatar’s QAPCO and Iran’s National Petrochemical Company.

By: Prema Viswanathan
+65 6780 4359

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