FocusMideast PP, PE snaps two-month falls as buying resumes

06 August 2010 08:06  [Source: ICIS news]

By Prema Viswanathan

SINGAPORE (ICIS)--Buying interest for polypropylene (PP) and polyethylene (PE) picked up sharply in the Middle East market this week, nudging up prices after a two-month slump, industry sources said on Friday.

The trend was in line with the upbeat sentiment in the Asian market as crude hovered above $80/bbl, fuelling expectations that Middle East prices would continue to increase through September, they said.

Offers for raffia-grade PP into Dubai were upward of $1,250/tonne (€950/tonne) CFR (cost and freight) GCC (Gulf Cooperation Council) region, with some suppliers offering cargoes at even $1,300/tonne CFR GCC.

Offers for low density PE (LDPE) were heard as high as $1,500/tonne CFR GCC, up $50/tonne from last week’s levels, according to market sources.

Earlier, PP and PE prices had bottomed and were even beginning to rise this week, reversing the steep downward trend witnessed since late May. (Please see graphs below)

Just last week most transactions in GCC region for August were concluded at $1,200-1,250/tonne CFR for raffia-grade PP and at $1,170-1,220/tonne CFR for film-grade high density PE (HDPE), marking a $50-80/tonne month-on-month decline.

Traders said the diversion of cargoes to the buoyant market in Asia kept supply tight in the Middle East.

In the case of PP, availability from Saudi Arabia was further constrained by an outage at Petro Rabigh’s plant due to propylene shortage, as well as intermittent problems in previous months at the Al-Waha Petrochemicals plant.

PE supply has also been restricted by shutdowns, but the problem has not been as severe as that for PP, as Middle East players enjoy better margins for PE than for PP due to extremely low ethylene feedstock costs compared with propylene.

In any case, propylene prices have been surging much higher than ethylene prices, traders said.

A sharp rise in freight rates has also contributed to the surge in PE and PP prices, market sources said.

“Offers of black pipe-grade HDPE from southeast Asia into the Middle East have surged by $70/tonne week on week to $1,450/tonne CFR, partly due to rising freight rates,” said a Dubai-based end-user.

Freight rates have almost doubled to over $100/tonne currently from last year’s levels.

Supply chain issues relating to shipping delays at the Dammam port in Saudi Arabia and Jebel Ali port in Dubai were also reported to have contributed to the tightness.

The Dammam port congestion is attributed to the increased output from existing Saudi Arabian plants and the start-up of new plants such as Yansab.

The Jebel Ali port has been facing a sharp rise in cargo volumes due to the diversion of consignments from Iran, which has been re-routing its cargoes via Dubai due to the sanctions imposed by the United Nations and the EU.

Distributors and traders said they had already exhausted their allocations for August and expected September allocations to be restricted.

Although the Muslim fasting month of Ramadan, beginning next week, is usually a period of low trading activity, this year the situation could be a bit different as customer inventories were very low, an end-user said.

“Processors have been keeping their stocks low, waiting for prices to bottom following the free fall over the past two months. So they were taken totally unawares when the situation reversed so suddenly,” he said.

Demand usually picks up in mid-September, after the week-long Eid ul-Fitr holidays at the end of Ramadan, said a trader.

“But this year, buying interest is expected to be much better than it was last year, when the global financial crisis cast a pall over the market,” he added.

Raffia-grade PP's offtake from the carpet industry was picking up in the region, a PP converter based in Jordan said, adding that demand from the industry had been in the doldrums earlier this year with margins were under severe pressure.

“But now we’re slowly beginning to see good margins,” he said.

($1 = €0.76)

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By: Prema Viswanathan
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