FocusAsia polyolefins prices rebound but uncertainty persists

10 January 2011 06:43  [Source: ICIS news]

By Malini Hariharan

PE sheetsMUMBAI (ICIS)--Asia’s polyolefin markets are likely to remain turbulent in the first quarter of the year despite recent price hikes, as feedstock costs are fluctuating and future demand remains uncertain, market players said on Monday.

Producers told ICIS they were also concerned about the rapid rise in crude oil and naphtha prices, which have put margins under pressure.

Nonetheless, polyethylene (PE) and polypropylene (PP) prices rose by $10-50/tonne (€8–39/tonne) last week in China, as traders returned to the market after the New Year holidays.

High-density polyethylene (HDPE) film-grade prices were higher at $1,230-1,280/tonne CFR (cost & freight) China, while linear low-density PE (LLDPE) values were at around $1,330-1,380/tonne CFR China and low-density PE (LDPE) were at $1,680-1,740/tonne CFR China, ICIS data showed.

Polypropylene (PP) injection-moulding grade prices had also increased, gaining $10-20/tonne to close at $1,460-1,500/tonne CFR China last week.

“The fundamentals in China are looking strong. Supply of certain grades is tight and traders are buying product. Price hikes in January should be possible,” said an optimistic trader.

Demand from converters, which were exporting plastic products to the West, was said to be good as they expected a recovery in orders from the US and Europe. 

“Demand in January and February is usually low, but compared with last year things are looking better,” said the trader.

The trader also linked the recent surge in buying to developments in the Dalian Commodity Exchange (DCE), where the key LLDPE futures contract for May had hit yuan (CNY) 12,800/tonne ($1,931/tonne) early last week against spot prices at CNY11,100-11,300/tonne.

This opened an arbitrage window, prompting traders to actively book import cargoes for arrival in February and March, while covering these transactions on the futures market, players said.

However, some market players were not confident that surge in buying by traders would compensate for a traditional slowdown in demand from end-users during the Chinese Lunar New Year holidays in early February. 

They also said the Chinese government’s decision in late December to raise interest rates by 25 basis points would eventually dampen the speculative activity.

Additionally, resistance to price hikes was building up among plastic processors in other parts of Asia, they said.

“The issue now is that fabricators in southeast Asia are not making a decent profit. We do not see them replenishing stocks in a big way,” said another trader.

Some producers were also concerned that cheap offers from the Middle East, especially Iran, would undermine their efforts to raise prices.

However, the biggest concern was the run up in crude oil and naphtha prices and its impact on margins. Naphtha values were assessed at above $900/tonne CFR Japan last week, supported by crude oil prices at above $90/bbl.

Although naphtha values have since eased to $876-879/tonne CFR Japan on mid-day Monday, prices were predicted to remain firm for at least the next two months as supply was set to tighten on the back of refinery turnarounds in the Middle East.

Further price hikes would then be needed to maintain margins, said producers.

“Naphtha is a big headache for us. We cannot transfer the cost increase easily, especially in the case of HDPE. This is problematic,” said a producer in South Korea.

There was virtually no delta between ethylene and HDPE prices last week, as ethylene was trading at around $1,200/tonne CFR northeast Asia.

Despite the hike in costs, most integrated producers across Asia were maintaining their normal operating rates as the squeeze in HDPE margins was being compensated by healthy profits from other ethylene derivatives such as LDPE and monoethylene glycol (MEG), according to market players. 

Some producers were also running their plants hard to build up stocks ahead of the planned maintenance shutdowns in the second quarter of this year.

Only Formosa Petrochemical Corp (FPCC) was planning to cut its operating rates because of the spiralling naphtha prices.

“Looking at Q1 relative to 2010, I have a pessimistic outlook. We still have to ride the year. But it is not going to be as good as last year. Things will worsen before they get better,” said an industry analyst.

Additional reporting by Rainy Ma

($1 = €0.78, $1 = CNY6.63)

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By: Malini Hariharan
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