FocusMajor PE, PP suppliers cut June offers to S Asia to induce buying

27 May 2010 06:33  [Source: ICIS news]

By Prema Viswanathan

SINGAPORE (ICIS news)--Major exporters have slashed offers for June polyethylene (PE) and polypropylene (PP) cargoes into South Asia by 6%, with add-in “price protection”, to induce buying amid a general downtrend in product prices, industry sources said on Thursday.

Offers for June parcels of high density PE (HDPE) film were at $1,230-1,250/tonne (€1,009-1,025/tonne) CFR (cost and freight) India, while those for linear low density PE (LLDPE) were mostly at $1,330-1,350/tonne CFR India, about $80/tonne lower than the prices quoted in May, they said.

HDPE film is more dense than LLDPE and is used mainly to make shopping bags and for food, drink and cosmetic packaging. LLDPE film, on the other hand, is used as a liner in shrink wrap, and for drip irrigation.

Buyers, however, were not biting despite assurance from suppliers that prices would be adjusted down at the time of delivery under the “price protection” scheme, they added.

"This assurance has not lured buyers back into the market as there is great uncertainty about the future price outlook due to the volatility in crude and feedstock values," said a polymer trader in Mumbai.

Crude values had fallen below $70/bbl in recent weeks from more than $80/bbl in early May on concerns about the global economic recovery as Europe's debt crisis unfolds.

Asian ethylene and propylene prices also crashed by more than $100/tonne last Friday, according to ICIS pricing data.

In Pakistan, the low buying interest for PE and PP was aggravated by protracted power shortages and liquidity concerns, said a Karachi-based polymer trader.

"Many converters have reduced operating rates at their plants due to power supply disruptions and this, in addition to weak upstream values, has dampened sentiment,” he said.

PE was facing more downward pressure than PP due to a supply overhang for some PE grades, market sources said.

One major Middle East supplier initially offered LLDPE at $1,410/tonne CFR India, but was looking to reduce its offers due to buyers’ resistance, a market source said.

Sporadic low re-export offers from Chinese traders for US- and Iranian-origin PE were contributing to the bearish market mood in South Asia, industry sources said.

Re-export offers were heard at $1,280/tonne FOB China for LLDPE and at $1,120/tonne FOB China for HDPE film, which were about  $40-50/tonne below current offers from Middle Eastern suppliers, market sources said.

June offers into Pakistan from the Gulf Cooperation Council (GCC) region were heard on Monday at $1,220-1,230/tonne CFR Karachi for HDPE film, down $50/tonne from May levels, a Pakistani trader said.

However, by Wednesday, most GCC suppliers were looking to reduce these export offers further as buying interest had remained weak, industry sources said.

Iranian HDPE film cargoes were offered much lower at $1,150/tonne CFR Karachi. LLDPE offers from the GCC were announced at $1,280-1,320/tonne CFR Karachi, but this was met with customer resistance.

Meanwhile, PP offers fell $60-80/tonne from two weeks ago to $1,300-1,320/tonne CFR India for raffia grade as customers continued to resist higher prices, market sources said.

Prices were falling despite bullish supply and demand fundamentals, they said.

“Our exports have increased significantly due to the pick up in the global economy, and availability of PP is restricted, but our domestic customers are putting pressure on us to decrease prices in line with the trend in upstream markets,” said a PP converter.

PP is used in packaging and automotive applications.

The steady depreciation of the Indian rupee was also exerting price pressures on import price, as buyers would have to shell out more rupees to buy cargoes priced in US dollars.

($1 = €0.82)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections
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By: Prema Viswanathan
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