InterviewPE margins may shrink in 2009 - Equate

18 April 2008 02:45  [Source: ICIS news]

By Prema Viswanathan

SHANGHAI (ICIS news)--Polyethylene (PE) producers not based in the Middle East may have to consider consolidating and reducing their commodity production if the market goes into a slight downturn in 2009, a senior Equate official said on Friday.

"All of us, including the Middle East producers, may have to be prepared for a shrinkage in margins next year, when surplus capacity from the Middle East heads out of the region, and the demand-supply balance tilts a little in favour of PE buyers," said Adel al-Munifi, president, Equate Marketing Co.

“Of course, it is too early to say conclusively what will happen. The high price of crude will exert upward pressure on prices, but the surplus supply from the Middle East is likely to trigger some price stabilisation," he said.

However, producers which are based outside the Middle East would suffer the most in the event of a possible market downturn,as Middle East producers were at an advantage, Al-Munifi said in an interview on the sidelines of the Chinaplas exhibition.

Customers in China had already begun to push for a correction in prices on concerns of easing demand due to the US economic downturn, the Chinese government's steps to regulate credit, and measures to curb exports, he said.

"Middle East producers such as Equate are well positioned to weather any downward adjustment in PE pricing next year, as we continue to have a low-cost feedstock base," Al-Munifi said.

He said gas supply in Kuwait was still abundant, and there was no anxiety about possible shortages.

And even if the price of gas were to go up a little in some countries in the Middle East, the region would still be highly competitive compared with other regions, he added.

However PE producers based in the US, Europe and Asia would be compelled to pursue new strategies to survive, such as focussing increasingly on speciality grades of PE, he said.

Nevertheless, Middle East producers were also facing challenges in terms of increasing construction and labour costs, Al-Munifi said.

"Prices of raw materials like cement and steel have surged," he said.

But the company is pushing ahead with its plans to complete the expansion of its PE plant at Kuwait as early as July 2008, he said.

"We still have a cost advantage in terms of feedstocks, and will continue to export to Asia and other markets, as the Middle East market is too small, despite high demand growth, to absorb all our capacity," he said.

The 550,000 tonne/year PE plant at Shuaiba, Kuwait, is expected to be expanded by 223,000 tonnes/year by July, he said.

Equate also operates an 800,000 tonne/year cracker and 400,000 tonne/year monoethylene glycol (MEG) plant at Shuaiba.

Dow Chemical and Petrochemical Industries Co (PIC) own 42.5% each in Equate Petrochemical Co, with Boubyan and Qurain holding the remaining 9% and 6% respectively.

The Chinaplas exhibition started on Thursday and ends on Sunday.

Click here to find out more on the European polyethylene margin report from global chemical market intelligence service ICIS pricing

By: Prema Viswanathan
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