FocusMideast, south Asia PE, PP rally may reverse - industry sources

20 January 2010 06:00  [Source: ICIS news]

(Clarifies price information in the 10th paragraph.)

By Prema Viswanathan

SINGAPORE (ICIS news)--The current polyolefins price spike in the Middle East and south Asia caused by mounting feedstock costs may not last long due to buyer resistance, sources close to suppliers and customers said on Wednesday.

“Increasing resistance from buyers is making it hard for suppliers to continue hiking prices,” a source close to a Middle East producer said.

“We are worried that if prices keep rising on the back of higher feedstocks, we may see a crash as we did in late 2008, when prices hit unsustainable highs.”

Polyethylene (PE) and polypropylene (PP) prices have surged by 10% in south Asia and 6.5% in the Middle East in the past week.

End-users said they were finding it difficult to pass down their PE and PP costs to their customers.

“We would rather wait before making large purchases, as prices are too high currently and our margins are getting squeezed,” a Saudi Arabian PP converter said.

He said he expects prices to soften in the coming weeks, as supply was more plentiful in the Middle East, with several new plants ramping up their operating rates to around 70-80%, up from the 50-60% seen late last year.

In India and Pakistan, buyers said they were watching the key Chinese market before stocking up. Trades have been slow in China ahead of the Lunar New Year holidays in mid-February, as customer resistance escalates.

“I have purchased limited volumes at high prices, but am unwilling to commit to large quantities at present,” said a PE converter.

Surging ethylene, propylene and naphtha values caused PE and PP prices in south Asia to increase by up to $130/tonne (€91/tonne) and $100/tonne, respectively, on 15 January compared with the previous week; in the Middle East, both PE and PP prices increased by $90/tonne over the same period, according to global chemical market intelligence service ICIS pricing.

High density PE (HDPE) film jumped to $1,400/tonne CFR (cost and freight) in India and the east Mediterranean (East Med), and to $1,320/tonne CFR in Pakistan and the Gulf Cooperation Council (GCC) region. PP raffia rose to $1,340/tonne CFR India, $1,300/tonne CFR Pakistan/East Med and $1,260/tonne CFR GCC, according to ICIS pricing.

“Suppliers have been justifying their price hikes, citing high feedstock costs and tight supply, but demand is not robust enough to sustain the rally,” said an Indian trader.

At current price levels, traders in India and Pakistan said they were not interested in taking long positions for fear there would be a price erosion soon.

On the supply side, the signals were confusing this week. Market sources in the east Mediterranean indicated a possible cut in allocations and further price hikes, especially for PE, due to supply constraints.

In the GCC region, however, buyers said there was adequate availability, despite a power outage in late December, which caused a production disruption in Saudi Arabia.

In India, buyers were indicating that supply would be more abundant following the restart of Haldia Petrochemical's facility in West Bengal this week after a prolonged turnaround.

($1 = €0.70)

For more information on PP and PE, visit ICIS chemical intelligence
Read John Richardson and Malini Hariharan’s Asian Chemical Connections blog
To discuss issues facing the chemical industry go to ICIS connect 

By: Prema Viswanathan
+65 6780 4359

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly