OUTLOOK ‘10: Mideast-S Asia PE, PP makers see lower margins

29 December 2009 04:03  [Source: ICIS news]

By Prema Viswanathan

SINGAPORE (ICIS news)-The year 2010 could prove a challenge for polyolefins players in the Middle East and India compared to 2009, with a massive oversupply situation looming, industry sources said on Monday.

While demand for polyethylene (PE) and polypropylene (PP) is expected to grow at 5-7% in the Middle East in 2010 from 2009, the healthy margins the region's producers enjoyed this year - thanks to persistently high prices - could see an erosion next year, producers said.

The spread between ethylene and PE, for instance, was around $120/tonne (€84/tonne) in India and $65/tonne in the Gulf Cooperation Council (GCC) region on 18 December, according to ICIS pricing. The spread between propylene and PP was at $68/tonne in India and $23/tonne in the GCC.

"We do not anticipate that prices of PE and PP will remain as high in 2010 as in 2009, as 2009 was an unusually good year, compared with our initial expectations," said a source at a major Middle East polymer producer.

Many of the Middle East projects, which were expected to come up in 2009, have been delayed to 2010, and newly started plants are set to ramp up operating rates to full capacity next year leading to surplus supply, the source said.

With the easing of supply, there was a strong possibility that prices of polyolefins would need to stabilise or even come down, the source said. "However, the extent of the price decline would depend on how much consolidation takes place outside the Middle East, and also the cost push from feedstocks," he said.

If crude and naphtha values remain high in 2010, as also ethylene and propylene feedstock costs, due to a heavy cracker turnaround schedule in Asia, the price decline for PE and PP may be less severe than anticipated, said a source close to a second producer.

Prices of crude have hovered around $70/bbl in recent weeks, while naphtha was at $767/tonne CFR Japan on 18 December, according to ICIS pricing. Ethylene and propylene were at $1,160-1,200/tonne CFR northeast Asia and $1,115-1,150/tonne CFR NE Asia respectively.

While oversupply is a dominant concern for producers in the Middle East and India, an expected improvement in year-on-year demand growth for polyolefins next year provides cause for optimism, producers and traders said.

"I am cautious about the magnitude of the upturn in demand next year, as the stimulus packages (which have driven demand) may run out, but overall I do expect 2010 to be a positive year (for polyolefins and other chemicals)," said Mohamed Al-Mady, CEO of Saudi Basic Industries Corp (SABIC), in an interview on the sidelines of the  Gulf Petrochemicals and Chemicals Association (GPCA) forum this month.

The strong growth in downstream segments such as packaging in the Middle East and automobiles in India provided room for hope, producers and end users said.

"I am happy to see that domestic consumption in countries like China and India driven by strong fundamentals, such as substitution of traditional materials with plastics in the high value-added segments we operate in, which I think is here to stay,” said William Yau, CEO of Borouge's marketing arm, on the sidelines of the GPCA forum.

In India, demand for PE and PP is forecast to grow in double digits in 2010, with some grades, such as BOPP, non-woven PP and pipe grade PE expected to grow by more than 20%, said Indian producers and end-users.

However, converters in both the Middle East and South Asia were worried that if prices remained high on the back of high feedstock costs, their margins would be severely squeezed.

"We saw this year that suppliers used any excuse to keep prices high, despite more availability due to the start-up of several new plants in the Middle East and India," said an Indian converter.

($1 = €0.70)

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Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections


By: Prema Viswanathan
+65 6780 4359



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