OUTLOOK ‘09: China, SE Asia PE/PP may ease in Feb

31 December 2008 04:24  [Source: ICIS news]

By Chow Bee Lin

SINGAPORE (ICIS news)--Polyethylene (PE) and polypropylene (PP) prices in China and southeast Asia may soften in mid February as regional producers continue to raise operating rates despite persistent weak demand, Asian producers and traders said.

PE and PP resin producers in China, South Korea, Thailand, Taiwan and Singapore have been maintaining low operating rates of 50-80% since September due to weak demand, but when these plants raise their production back to 80% or higher in February after the Chinese New Year holidays, regional prices could come under pressure, a northeast Asian producer said.

“Downstream demand has been weak since the global economy started going downhill, but a tighter supply caused by regional production cuts have been supporting prices,” a South Korean trader said.

Resins demand in China and southeast Asia has been badly hit by the global economic downturn since September with demand for plastic finished goods dwindling at home and in the key US and Europe export markets.

“Plastics processors in China and southeast Asia are currently estimated to be operating at 30-50% on average due to poor demand,” a northeast Asian PP producer said with regards to the downstream sectors.

“Global plastics demand is unlikely to improve in the first half next year as the key application sectors will be grappling with a slew of problems led on by the global downturn, such as production and job cuts, shrinking profits and even losses,” an global PP supplier said.

“Asian plastics demand is unlikely to improve much next year, hence any increase in supply from current levels is likely to push prices down,” the PP supplier added.

The average PE and PP weekly prices in China and southeast Asia have been largely stable since early November, after plummeting by $70-200/tonne (€49.70-142.00/tonne) in October when demand took a beating from mounting recession fears, according to global chemical market intelligence service ICIS pricing.  

PE and PP resins are used in various sectors, including construction, automotive, electronics and electricals, and consumer packaging.

Some regional producers were likely to raise their production in January but supply would still be relatively tight as the plants in China and Taiwan would either be shut or running at reduced rates, the northeast Asian PP producer said.

“Producers in China and Taiwan are expected to either maintain low output rates or shut their plants in end January for up to 10 days due to the Chinese New Year holidays,” he said. Most Chinese factories will be shut two to three weeks prior to the holidays, which officially start 26 January.

Some traders said they believed a large volume of shipments have been scheduled to arrive in China and Vietnam in early February to avoid the Chinese New Year holidays, and that would add to the downward price pressure in these markets.

There were also concerns that the flurry of US cargoes booked in early December would start hitting the Chinese shores in mid February, weighing down prices, the traders said.

The benchmark high density PE (HDPE) and yarn grade PP traded at $800-850/tonne and $720-780/tonne, on a CFR (cost and freight) China and southeast Asia basis respectively in the week ended 19 December, according to ICIS pricing.

($1 = €0.71)

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By: Chow Bee Lin
+65 6780 4359

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