FocusNortheast Asia PE producers may cut op rates on weak demand

13 April 2011 08:53  [Source: ICIS news]

Polyethylene (PE) bagsSINGAPORE (ICIS)--Polyethylene (PE) producers in northeast Asia may cut their operating rates in the coming weeks if regional PE prices fail to catch up with rising spot ethylene feedstock prices in Asia, industry sources said on Wednesday.

The benchmark linear low-density PE (LLDPE) film grade prices were assessed at $1,380-1,410/tonne (€952-973/tonne) CFR (cost & freight) China and spot ethylene was trading at $1,330-1,380/tonne CFR northeast Asia for the week ended 8 April, ICIS data showed.

Resins producers said they were concerned that their margins would be squeezed if the gap between spot PE and ethylene feedstock prices narrowed further, a northeast Asian producer said.

The weekly average spot ethylene price in northeast Asia has risen by $40/tonne or 3% since 11 March, while LLDPE film grade prices have dropped by $75/tonne or 5% over the same period, according to ICIS data.

Naphtha-based producers in northeast Asia typically have to price PE at a $150/tonne premium over ethylene, but current regional spot PE and ethylene prices were trading at around the same level, the producer said.

“I think it’s time to decide now,” the producer said, referring to the operating rates at its PE plants.

A second regional PE producer said it would monitor the market this week and might decide to adjust its production rates next week if the market remained bearish.

Resin demand in the key China market was badly hit by the recent monetary tightening measures introduced to curb inflationary pressure, local resin distributors and processors said.

The cost of loans increased significantly after the Chinese central bank raised lending rates repeatedly in the past few months and the situation was exacerbated by the high premiums that Chinese banks are charging on official lending rates, a local distributor said.

“The banks are charging premiums of at least 20% over the official lending rates because they have less money to loan out after the recent hikes in the bank reserve ratio,” he told ICIS in Mandarin.

“Given the tighter credit lines, we’re buying less raw material – just enough for covering our immediate needs,” said a plastics processor.

Spot ethylene prices

LLDPE spot prices

($1 = €0.69)

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Author: Bee Lin Chow

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