FocusAsia PP market jittery ahead of new plant start-ups

04 March 2009 05:48  [Source: ICIS news]

By Chow Bee Lin and Prema Viswanathan

SINGAPORE (ICIS news)--Asia’s polypropylene (PP) markets are jittery as the imminent start-up of new plants in China and the Middle East stokes fear of possible supply glut, industry sources said on Wednesday.

Several new plants in the Middle East plus one new unit in China with 3.62m tonne/year in combined capacity are due to come on stream from March to June this year, which could inject around 330,000 tonnes of additional supply to the global market per month.

The bulk of the Middle East supply was expected to flow to Asia as demand in other markets such as Europe and the US was weak due to the global economic downturn, one Asian PP trader said.

A significant portion of the additional Middle East supply is targeted at South Asia, a Middle East producer said.

“Indian demand has been very strong lately, and this gives us hope that India can absorb some of the new Middle East output,” the Middle East producer added.

Increased PP consumption and tight domestic availability due to plant outages caused imports into India to balloon in recent weeks, prompting Indian producers to cut domestic prices sharply.

“The flood of low-priced imports was very worrying to Indian producers, prompting them to sharply reduce domestic prices this week,” an Indian PP producer said.

The oversupply fear was compounded by the bearish demand outlook for global plastic finished goods due to the global downturn, an Asian PP producer said.

Japan, which had around 700,000 tonnes of PP stocks at the end of January, is a good example of how much PP demand has slowed down,” the Asian PP producer said, noting that the inventory amounted to three months of production in Japan.

However, not all Asian markets are bearish.

India’s PP consumption has been very strong since late January and is expected to pick up further in the coming months mainly due to robust growth in the foodgrain packaging sector.

“The government’s tax-reduction measures (announced) last week have also boosted demand for PP,” the Indian PP producer said.

PP demand from the Indian automotive sector is also expected to get a boost, with car companies sharply reducing prices in tandem with the recent cuts in excise and service taxes, an Indian trader said.

Furthermore, Indian plastics end-users said they would continue to rely on imports even after a new 900,000 tonne/year PP plant starts up in Jamnagar in Gujarat State.

“We want to lessen our dependence on domestic supply, as we have found it very undependable in the past few months, and would prefer to minimise the risk of supply disruption by also buying imported material,” said an export-oriented PP converter. Indian exporters of plastic goods are exempted from excise tax if they import their raw material.

The new PP plant operated by local major Reliance Industries was expected to start up by end-March.

Also, some Asian traders said they believed the new capacities would only have an impact on the market in the second half of the year, as the new plants would need time to raise production rates.

        New PP plants due to startup in the Middle East and China in the first half of 2009

Company

Location

Plant capacity (‘000 tonnes)

Expected start-up

Natpet, Yanbu

Yanbu, Saudi Arabia

400

Shut down shortly after starting up in Dec ’08. Due to restart in mid-March ‘09

Saudi European Petrochemical (Ibn Zahr)

Al Jubail, Saudi Arabia

*500

Jan

Reliance

Gujarat, India

900

End March

Al Waha Petrochemical

Al Jubail, Saudi Arabia

450

End-Mar

Petro Rabigh

Rabigh, Saudi Arabia

700

Q1

Saudi Polyolefins

Al Jubail, Saudi Arabia

*270

Q1

Fujian  Refining & Petrochemical Co (FREP)

Fujian, China

400

Q2

Total

 

3,620

 

       *Addition

 

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By: Chow Bee Lin
+65 6780 4359



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