FocusMiddle East PE, PP market to stay bearish on China’s lead

08 June 2011 06:51  [Source: ICIS news]

Food packaging is among the various applications for polypropylene.By Ong Sheau Ling

SINGAPORE (ICIS)--Spot prices of polymers in the Middle East will likely remain weak for the rest of June, taking the cue from China’s bearish market, industry players said on Wednesday.

Polyethylene (PE) and polypropylene (PP) values for June shipments are down $50-120/tonne (€34-82/tonne) from May, according to ICIS data.

“[Middle East] Prices [for] the rest of June are likely to make further minor downward corrections, based on the current market situation in China,” said a Saudi Arabian polymer producer.

PP raffia prices tumbled for the third consecutive week after hitting a 10-month high, shedding $120/tonne to $1,590-1,630/tonne DEL (delivered) GCC (Gulf Cooperation Council) and $1,620-1,650/tonne DEL East Med (Mediterranean), market sources said.

Meanwhile, prices of various linear low density PE (LLDPE) film, high density PE (HDPE) film and low density PE (LDPE) film for June shipments fell $50-70/tonne over the same three-week period, they said.

On Wednesday, prices of linear low density polyethylene (LLDPE) film are quoted at $1,430-1,450/tonne DEL GCC and at $1,460-1,480/tonne DEL East Med.

Low density PE (LDPE) film prices hover at $1,750-1,790/tonne DEL GCC and $1,770-1,790/tonne DEL East Med, while high density PE (HDPE) film values are at $1,420-1,450/tonne DEL GCC and at $1,450-1,480/tonne East Med, market sources said.

In China, polymer prices were much lower, with PP raffia at $1,530-1,590/tonne CFR China; LLDPE film at $1,230-1,280/tonne CFR China; HDPE film at $1,330-1,350/tonne CFR China, and LDPE film at $1,530-1,580/tonne CFR China, on Wednesday.

Unless China’s demand improves by the end of the month to boost July sales, converters in the Middle East will not have confidence to buy more than what they need each month, the Saudi polyolefin maker said.

“This is the last lap for price support before Ramadan [Muslim fasting month] kicks in on 1 August, as demand will dwindle. If prices of PE and PP do not normalise by July, we can only achieve better pricing in the fourth quarter,” he added.

“If China does not buy, converters here [in the Middle East] will not buy as well,” said another key Saudi maker.

Several traders based in Dubai said they have received a lot of enquiries for June cargoes but there was no true buying interest.

“Our customers did not buy much cargoes in May, so for June, they have to restock. However, prices seem likely to fall further and hence, customers are holding back,” said a Dubai-based polyolefins trader.

An Oman-based converter said: “We are buying just enough material to cover us for June. We do not want to risk buying high-cost raw material in view of a falling market.”

“PP prices have to fall harder than PE naturally, because in the past few months, PP prices have been jumping at $100/tonne per month. There is no support [to] prices at all,” said a Jordan-based converter.

Converters are worried that the restart of two major PP facilities in Saudi Arabia by July will flood the market with supply, creating further pressure for prices to fall.

National Petrochemical Industrial Co (NATPET) is expected to restart its 400,000 tonne/year PP plant at Yanbu, Saudi Arabia, on 1 July. Meanwhile, PetroRabigh’s petrochemical complex, which includes a fluid catalytic cracker (FCC) unit that produces 900,000 tonnes/year of PP, is due to fully resume production by mid-July.

“We are actually afraid that the polymer [PP] prices will fall below that of the monomer [propylene]. If that really happens, I do not know what will happen to the Asian makers,” said a Saudi PE and PP producer.

Spot prices of feedstock propylene were discussed at $1,450-1,470/tonne CFR (cost and freight) NE (northeast) Asia, narrowing the price spread to China’s PP raffia.

“The price gap between PP and propylene is barely $100/tonne, compared to the traditional spread of $150-250/tonne. [Asian] PP producers are under tremendous pressure to minimise their loss and at the same time, to sell some products in the current weak demand,” said a GCC PP maker.

China's petrochemical giant Sinopec is expected to cut its June PP output by around 40,000 tonnes – the company’s second production cut amid a margin squeeze caused by low prices and high production cost, largely on account of high international crude prices.

“Makers in the Middle East [have the] the upper hand [in a situation where propylene prices are rising], as most of us are propane-based. But our margins are not as lucrative as before,” said a Saudi PE and PP maker.

“Not only is the PP market not looking good, PE is not performing as well,” he added.

Asian PE makers are likely to further cut production on the back of weak demand. Sinopec is also expected to reduce its PE output by another 80,000 tonnes this month.

Meanwhile, the ongoing political turmoil in Syria and Libya is also weighing down on the Middle East polymer market.

“Sales in Syria are still very difficult. Even its neighbour Jordan is facing slower business,” said a Saudi PE producer.

In addition, a GCC producer was heard undercutting mainstream offers, pressuring its regional counterparts to lower their offers, market sources said.

“The presence of such cheaper material is also affecting the sentiment. This [GCC] producer is very aggressive,” said another Saudi PE and PP maker.

($1 = €0.68)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Ong Sheau Ling
+65 6780 4359

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