FocusZero-duty nudges up ASEAN polyolefins prices; re-exporters hit

10 February 2010 06:11  [Source: ICIS news]

By Chow Bee Lin

SINGAPORE (ICIS news)--The ASEAN (Association of Southeast Asian Nations) free trade pact just made it more expensive for some export-oriented plastics processors in the region to import polyolefins, as some southeast Asian suppliers started charging a higher premium on their zero-duty products, industry sources said on Wednesday.

Regional re-exporters that had enjoyed zero duty even before the new trade policy came into force this year, now have to contend with higher prices of raw materials.

Polyolefins are raw materials used in a wide range of industries, including packaging, automotives and construction.

Some ASEAN polyolefin producers have hiked their prices, widening the price gap with Middle East material to as much as $70/tonne (€51/tonne) on a cost and freight (CFR) basis, in markets like Malaysia and Indonesia when the FTA was implemented.

The ASEAN suppliers feel more comfortable in charging higher premiums also because they have had access to a large segment of the markets due to the zero duty. In the past, when a 5% duty was applicable, their core customers were mainly the export-oriented processors whose raw material import was duty-exempted.

Most grades of ASEAN material used to be priced around $10-40/tonne above Middle East product in southeast Asia.

“ASEAN producers are cashing in on the twin-fold benefits of zero duty and tight supply now, but when the supply crunch eased, they’ll have to adjust their prices lower to compete with Middle East suppliers,” a regional trader said.

Under the FTA, the original ASEAN members – Singapore, Indonesia, Malaysia, the Philippines, Thailand and Brunei – have scrapped duties on intra-regional trade of most products, including polyolefins.

Duty-exempted ASEAN material can be priced higher on a CFR (cost and freight) basis and still be cheaper than Middle East material, which is charged a 15-20% duty when imported into Asia.

For instance, an average price for Middle East film grade HDPE at $1,350/tonne CFR Malaysia works out to be $1,620/tonneon after import duty. The price would be $195/tonne higher than the average CFR price of the duty-exempted ASEAN material at $1,425/tonne, the processors said.

If the 5% duty was still effective for ASEAN sources in Malaysia, the price gap between ASEAN and Middle East products on a CFR basis would have been narrower, they added.

In Indonesia, linear low density PE (LLDPE) from one ASEAN source was offered at $1,500-1,510/tonne CFR for February shipment, $60-70/tonne above the prices of Middle East products, local traders said.

Injection and yarn grades polypropylene (PP) from one ASEAN origin was sold at $1,390/tonne CFR Indonesia last week for February shipment, but offers of non-ASEAN material at $1,340-1,370/tonne CFR Indonesia had attracted little buying interest, local traders said.

Polyolefins imported from non-ASEAN sources are subject to a 15% import duty in Indonesia, according to local sources.

The current wide price gap between ASEAN and Middle East material also has to do with tight availability of ASEAN material, regional traders said.

ASEAN polyolefin producers cut production in January and February due to tight supply of ethylene and propylene feedstock in Asia, they said.

Key polyolefins producers in the ASEAN region include ExxonMobil and The Polyolefin Company in Singapore, PTT Chemical and Siam Cement in Thailand, Chandra Asri in Indonesia and Titan Group in Malaysia.

($1 = €0.73)

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By: Chow Bee Lin
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