FocusMiddle East converters face margin crunch

31 July 2008 09:29  [Source: ICIS news]

By Prema Viswanathan 

SINGAPORE (ICIS news)--The margins pressure on polyethylene (PE) and polypropylene (PP) converters in the Middle East is set to intensify, as prices have surged by up to 7% for August shipments on supply constraints, traders and end users said on Thursday.

Converters said their margins were severely squeezed as prices had been rising almost every month since the beginning of this year, but they found it hard to pass on the increases to their customers.

"Our price negotiations with big customers are done on a six-monthly basis, so we can’t increase our offers in tandem with the monthly increases in PP costs," said a PP converter in the east Mediterranean region (East Med).

Even a PE converter in the Gulf Cooperation Council (GCC) which negotiates with its customers every month, said it was not possible to increase its offers at the same rate as its suppliers did. " With inflation in double digits, our customers are resisting steep increases in PE film prices," the converter said.

Also, demand for packaging PE and PP film and PP raffia and fibre for carpet making was lukewarm at the moment due to persistently high prices, Middle East processors said.

Traders and converters said suppliers had reduced their PE and PP allocations by around 30-50% due to tightening supply. End users said they had little bargaining power as their stocks were low, but bought limited volumes in the hope that prices would fall in the coming months.

High density PE (HDPE) film and linear low density PE (LLDPE) offers for August shipment have risen by up to $120/tonne in the GCC and East Med regions to $1,910-1,980/tonne delivered (DEL) GCC and $1,980-2,040/tonne DEL East Med, they said.

PP has moved up by nearly $80/tonne in the East Med and been rolled over in the GCC, to $2,050-2,100/tonne DEL East Med and $2,000-2,020/tonne DEL GCC.

The main factors prompting the surge in offers was limited supply caused by outages at Saudi Basic Industries Corp (SABIC)’s PE and PP plants at Al-Jubail, and reduced operating rates at Equate’s PE plant in Shuaiba, Kuwait, traders said.

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By: Prema Viswanathan
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