OUTLOOK ’12: Mideast PE, PP margins still good amid low growth

06 January 2012 07:30  [Source: ICIS news]

By Ong Sheau Ling

Polyethylene (PE) bagsSINGAPORE (ICIS)--Middle East polyethylene (PE) and polypropylene (PP) producers will enjoy good margins because of stable feedstock costs in 2012, but prices will likely remain stable-to-soft as a result of competition and weak demand, industry players said.

Ethane gas pricing in Saudi Arabia is unchanged at $0.75/MMBtu (€0.59/MMBtu), while Saudi propane gas pricing is still at a 28% discount to Japan naphtha prices less freight costs since 2011, Saudi players said.

With the continuous cost advantage, polyolefin producers in the Middle East said they will still be able to enjoy good margins and there are plans to even expand their resins business to more value-added downstream products.

“There is too much competition in the commodity PE and PP grade markets. In order to grow our revenue, we have to go for premium products to cater to niche markets,” a Saudi PE and PP producer said.

As a result of the fresh capacities coming on line, price competition will prevail this year amid a small increase in PE and PP resins consumption in the Middle East.

The slew of PE and PP start-ups in the Gulf Cooperation Council (GCC) region includes Saudi Polymers’ two 550,000 tonne/year high density PE (HDPE) units and 400,000 tonne/year PP facility that are scheduled for start-up in the first quarter.

Qatar Petrochemical Co (QAPCO) is also planning to bring its 300,000 tonne/year LDPE unit on stream in the first quarter of this year. The producer was hoping to start up the unit in December 2011, but market players said it reverted back to its original start-up target in the first quarter of 2012.

Saudi Kayan Petrochemical’s 300,000 tonne/year low density PE (LDPE) plant will then come on line in mid-2012.

Market players are largely in agreement that the estimated growth in PE and PP consumption in the Middle East was at about 2% in 2011 and the figure for 2012 is expected to remain at the same level, as a result of the political instability in Arab countries in the GCC, East Mediterranean (East Med) and northern Africa.

“The Arab Spring is still ongoing, with Syria still in an uncontrollable state. It is now nearly impossible to export regional resins and finished plastics goods to Syria,” said a second Saudi PE, PP maker.

Syria is the largest resins and plastics goods consumer in the East Med region. The Arab league imposed economic sanctions against Syria, with effect from 3 December 2011.

“Not just demand from Syria is low,” a GCC-based PP maker said and added that Egypt, which is one of the most important export destinations for resins and plastics goods, is still grappling with a slow economic recovery.

The political upheaval in the Middle East that began in December 2010, coupled with fears of a double dip recession in the US as well as the eurozone sovereign debt crisis that occurred in second half of 2011, are key factors that weakened the demand for plastics.

“The impact of the Arab Spring and eurozone crisis will still be present [in 2012]. Even though many Arab countries are on the road to economic recovery because of their young demographics and potential for more polymer consumption per capita, it is not easy to see a jump in [PE and PP] resins demand in 2012,” a Dubai-based polymer trader said.

Meanwhile, regional downstream converters said they are concerned about their raw material PE costs.

“Although we are still going ahead with our expansion plans at our converting units, export orders for our finished goods to our neighbouring Arab countries are still low. If [PE] prices do not correct further, we will lose our competitiveness as compared with our counterparts in Asia,” a Saudi film converter said.

The average weekly prices of LDPE film in the GCC were assessed at $1,490/tonne CFR (cost & freight) on 30 December 2011, a $205/tonne premium over those in China, ICIS data showed.

“LDPE film prices [in the GCC] have to come down. Furthermore, China’s demand will slow down ahead of the Lunar New Year,” said a Saudi film packaging manufacturer.

The bearish sentiment of downstream makers caused some traders to expect PE and PP prices to be stable-to-soft this year, in line with the price decline seen since mid-November 2011 in the key China market.

Sentiment in the Middle East PE and PP market is directly affected by the world’s largest polyolefins producer, China.

However, some Middle East PE and PP producers argued that there is little room for a further price decline in polyolefins in China, as prices have already fallen and that caused some Taiwanese and South Korean producers to reduce or plan to reduce their PE and PP operating rates to prevent a further supply glut.

“Prices [in the Middle East] in January and February will likely stay at around their current level. In March, the price outlook will differ, [but it is] subject to how China’s demand is after the [Lunar New Year] holiday,” said a Saudi polymer major.

($1 = €0.78)

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By: Ong Sheau Ling
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