OUTLOOK '08: Mid-East, S Asia PE, PP to gain in H1

28 December 2007 03:30  [Source: ICIS news]

By Prema Viswanathan

SINGAPORE (ICIS news)--Middle East and South Asia polyethylene (PE) and polypropylene (PP)  makers are expected to see better margins in the first half of 2008 on tight supply and strong demand, but the outlook for the second half is less certain, suppliers, traders and end-users said on Friday.

Converters in the two regions will, however, continue to face a squeeze on margins as they struggle to pass on higher PE and PP costs to customers in the retail and other sectors.

“Supply is so tight and demand so robust that we don’t expect prices to come down until the second half of 2008, when supply is expected to ease a little as new capacities come on stream,” a supplier said.

Prices are expected to surge even higher in Iran, where US sanctions on three major banks could continue to cub imports, the supplier added.

In the Middle East, demand for PE and PP is expected to grow by 7-8% in 2008, up from 6-7% in 2007, on strong growth from the packaging, gas and water pipes applications in for PE and from packaging, synthetic carpets and automotive parts segments for PP.

The substitution of polystyrene with PP in the food and beverage segment on environmental grounds will also give a boost to the popularity of PP in the Middle East, said an end user.

“The policy initiatives by local governments in the Middle East to encourage the growth of downstream industries, especially in Saudi Arabia, will lead to increasing consumption of PE and PP,” a supplier said.

On the supply side, allocations from major suppliers will be limited if turnarounds and outages are as prolific as witnessed this year, said a trader.

Diversion of supply to high-priced markets such as Africa, Europe and Turkey will also reduce availability in the Middle East.

Reduced polymer output and rising prices in China could also result in more volumes being shipped to that country from the Middle East, said a second trader. Increasing demand from South Asia will also attract volumes from the Middle East, he added.

Delay in the start-up of new capacities in the Middle East could intensify the supply constraints, the first trader said.

The burgeoning demand and restricted supply will add to the pain suffered by end users, said a second end user.

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 the 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.

The story is no different in South Asia, where demand for PE and PP in 2008 is expected to be 14-17% than in 2007 for India. The main demand drivers would be packaging and pipes applications, said an Indian converter.

“Supply of PP will remain tight in the first half of the year, easing only in mid-2008, when Reliance Industries’ new Jamnagar PP plant comes on stream,” said the converter.

PE availability is expected to ease only in the second half of the year, when Haldia Petrochemicals’ deferred expansion goes through, said a second Indian converter.

In case of Pakistan, which is totally reliant on imports, the lack of local production could cause prices to keep surging in the first half of next year, as they have in recent months, said a Karachi-based trader.

“Pakistan is expected to see double digit demand growth for PE and PP in 2008, the same as in 2007,” said a converter. “On the other hand, we anticipate more limited availability in the first half of next year.”

Major PE and PP producers in the Middle East and South Asia include Saudi Basic Industries Corp (SABIC), Saudi Polyolefins Co, Kuwait’s EQUATE, Qatar’s QAPCO, Iran’s National Petrochemical Company and India’s Reliance and Haldia Petrochemicals.
By: Prema Viswanathan
+65 6780 4359

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