FocusNew PE, PP supply to hit Asia/Middle East in H2 2010

01 March 2010 07:26  [Source: ICIS news]

By Prema Viswanathan and Chow Bee Lin

SINGAPORE (ICIS news)--Asian polyethylene (PE) and polypropylene (PP) markets are bracing for a tidal wave of resin supply expected to hit regional markets in the second half of 2010, sources said on Monday.

About 4.7m tonnes/year of PE and 4m tonnes/year of PP capacities were expected to start-up in 2010 in Asia and the Middle East, according to industry estimates. (please see table below)

An estimated 5.6m tonnes/year of PE and 4.5m tonnes/year of PP nameplate capacity came on stream in 2009 in the two regions but a large proportion of the new plants were still not running at full rates, the sources added.

"Many of the new plants in China that started up in the second half of last year had experienced teething problems but their production should stabilise this year," an Asian resin producer said.

Traders said regional powerhouse China might not be able to absorb such a large increase in polymer capacity as the government continues with credit tightening.

China's PE and PP consumption - the world’s largest polymer resin importer - rose to around 16m tonnes and 13m tonnes respectively in 2009, up 38% and 27% from 2008, according to industry estimates. The estimates include local output and imports.

However, the impact of new capacities on prices remains unclear. PE and PP prices could remain relatively high if crude oil values rose further and if production issues continued to plague Middle East polymer producers, sources said.

Cost-advantaged makers in the Middle East were expected to add around 2.2m tonnes/year of PE and 1.65m tonnes/year of PP this year. However, the full impact of these start-ups was likely to percolate to the market only by late 2010 or early 2011, sources added.

In 2009, Middle East petrochemical exporting countries including - Saudi Arabia, Kuwait, UAE, Egypt, Oman and Iran - had 3.9m tonnes/year of PE and 1.8m tonnes/year of PP capacities coming on stream. However, these plants experienced problems caused by a dearth of skilled manpower and shortage of feedstocks such as ethane and propane, traders said.

The estimated surplus available for export from the Middle East was at 11.4m tonnes/year for PE and 5.2m tonnes/year for PP in 2009. In 2010 the surplus is expected to rise to 13.49 tonnes for PE and 6.77m tonnes for PP, assuming all plants ran at full rates, according to global chemical market intelligence service ICIS pricing.

The actual volume that hit the export market in 2009 from the Middle East - estimated at 4.5m tonnes/year for PE and 1.4m tonnes/year for PP - was far lower than the nameplate surplus, according to trade information provider International Trader Publications.

Hence the pressure on prices expected late last year and early this year never happened, and values have continued to rise.

Polymer offers for March into the Gulf Cooperation Council (GCC) were raised by $30-60/tonne (€22-44/tonne), or upto 4%, due to tight supply and high monomer prices that may force some converters to cut production, industry sources said on 25 February. This followed a $130-250/tonne hike in February.

Several Middle East plants continue to run at lower rates. Al Waha Petrochemical’s PP plant at Al Jubail is running at 70% of capacity after restarting last week following a three-week outage due to technical problems.

Oman Polypropylene shut down its plant at Sohar for a two-month turnaround in February while Advanced Petrochemical Co’s PP plant will be taken off line on 11 March for three weeks of scheduled maintenance and Petro Rabigh’s linear low density PE (LLDPE) plant, which started up in 2009 continues to run at low operating rates due to technical issues.

"Although the government has provided assurances that gas supply to the industry will increase significantly in the next two years, producers are currently facing a severe shortage, with household consumption being given priority over industrial demand," a Middle East PP converter said.

In Saudi Arabia, cuts in oil production imposed by Organisation of the Petroleum Exporting Countries (OPEC) have reduced supply of associated gas, while in Kuwait, increasing demand for gas by the power sector, especially in summer, has severely restricted availability for petrochemical production.

In Iran, lack of foreign investment has stalled gas extraction projects in the South Pars region while rising heating demand in winter has caused existing supply to be diverted to households.

The silver lining against over supply is growing requirement for polymers in the key China and India markets.

In India, the PE shortfall is rapidly increasing, with demand growth expected to grow in double digits in 2010 due to strong gross domestic product (GDP) growth.

China’s PE and PP ‘implied’ consumption was expected to grow by double digit this year, but much lower than last year’s 38% and 27%, according to industry estimates.

Consolidation in Europe and possibly in the US due to poor economics could also lead more Middle East supplies to Europe, and help ease the oversupply in Asia, a second Asian PP producer said.

($1 = €0.73)

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By: Chow Bee Lin
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