Polymers: PE firms up on supply tightness

13 February 2012 00:00  [Source: ICB]

Prices on the rise as feedstock ethylene hikes and outages tighten supply

The polymers sector in India is expected to expand in the long term, as the country's industry comes out of a challenging first three quarters of its 2011-2012 fiscal year.


Prices will strengthen in time

Copyright: Rex Features

The year, ending in December 2011, was marred by high inflation and an economic growth slowdown. Polymer demand growth was also pressurized by weakness in key industrial ­sectors, and tight credit policies introduced by the Indian ­government to stem inflation.

However, rising plastic ­consumption in several sectors - including packaging, infrastructure, agriculture, automotive, healthcare and consumer goods - is expected to drive long-term growth overall. Prices have been on the ­rebound since early ­January, due in part to a power outage at Al-Jubail Industrial Park in Saudi Arabia, rising raw material costs and the appreciating ­Indian rupee.

This price rebound may likely improve buying sentiment, ­market players said. Many are ­optimistic that 2012 will be a better year for India's plastics industry. Polyethylene (PE) demand is expected to increase by 3-4% in the 2012-2013 fiscal year alone.

February offers for film-grade linear low density polyethylene (LLDPE) in India's import market were up by an average of 7% from January's settlements, driven largely by short supply and the appreciating rupee.

Market supply also tightened as a result of low operating rates and shutdowns at some facilities in both India and the Middle East, industry players said.

February offers were heard at $70-100/tonne (€54-76/tonne) higher than January settlements, which were at $1,210-1,240/tonne CFR (cost and freight) Mumbai. On January 24 a major Saudi supplier offered LLDPE cargoes at $1,340/tonne CFR Mumbai - $110/tonne higher than previous offers. Meanwhile, a separate Saudi producer offered cargoes at $1,280/tonne CFR Mumbai, an increase of $60-70/tonne, traders added.

In comparison, a Southeast Asian producer was said to have been increasing its offers by $20-30/tonne weekly since early January, reaching $1,330/tonne CFR Mumbai on January 24.

Industry players said the ­higher import offers were within the expectations of Indian traders and converters, however, and are likely to translate into deals as import sentiment improves.

Local supply in India has been persistently short, based on ongoing turnarounds at India-based Haldia Petrochemicals' (HPL) high density polyethlyene (HDPE)/LLDPE swing plant at Haldia, and reduced operating rates at Indian Oil's HDPE/LLDPE swing facility at Panipat. This continued to push up LLDPE film prices in the open market.

The widespread outages at PE and polypropylene (PP) facilities at Saudi Arabia's Al-Jubail ­Industrial Park on January 19 has also been cause for concern over supply from that region, which helped strengthen India's import market, Indian players added.

Meanwhile, HPL restarted its PE and PP plants in West Bengal on February 1. The units had been closed for two weeks, along with the company's cracker at the same site, because of technical issues. The company is also in the middle of a ramp-up procedure.

HPL's HDPE/LLDPE swing plant has a capacity of 700,000 tonnes/year, while the PP unit has a capacity of 340,000 tonnes/year, as assessed by ICIS.

Meanwhile, European PE ­producers and buyers are expecting a difficult round of negotiations for February PE contracts. Initial indications point to a €150/tonne ($197/tonne) price hike - some €51/tonne above a feedstock ethylene price increase for February.

The European ethylene ­contract price for February settled at €1,219/tonne FD (free delivered) NWE (Northwest Europe) ­­- a €99/tonne increase from the January contract price, as ­assessed by ICIS.

At least one PE producer said it is coming from a bad market position, with rising feedstock costs pushing margins down.

Such low margins are ­unsustainable, PE producers added. In addition, the European PE market has been better ­balanced lately due to recent ­production cutbacks.

These were also cited as the major reason for rising price offers. Most PE producers in Europe are aiming for a €50/tonne increase to cover the February ­ethylene contract price hike.

Meanwhile, US January contract prices rolled over from the previous month in an attempt by US producers to meet competitive ­offers at the end of the month.

Producers were pushing for a 6 cent/lb ($132/tonne, €101/tonne) increase for January. They cited low inventories and upcoming cracker turnarounds, which forced some suppliers to buy higher-priced spot ethylene ­- thus boosting their costs - as ­reasons for pushing the hike.

Buyers, however, cited weak demand and producers' margins - which increased from lower-priced ethane - as reasons why the January contract settled flat.

Producers argued that the flat settlement was more likely the result of a domino effect from having to meet competitive offers, particularly after one major ­producer settled flat.

The rollover for the January contract means producers will now try to find a 6 cent/lb price hike for the February contract.

The flat settlement also means LLDPE butene film was at 71-74 cents/lb DEL (delivered), LDPE film prices were at 80-82 cents/lb DEL and HDPE blow molding prices were at 69-71 cents/lb DEL for small volume buyers, as ­assessed by ICIS.

Meanwhile, a 7 cent/lb e_SDHpincrease for all grades of PE has been announced by at least two US PE producers, effective March 1. Total Petrochemicals said it will increase its price for all HDPE and medium density ­polyethylene (MDPE) grades by 7 cents/lb. Chevron Phillips Chemical also said it would increase the price for all its PE products by the same degree.

Producers were reportedly bullish on the proposed price hikes for February and March, banking on some supply tightness in the market due to ­upcoming cracker turnarounds.

In Latin America PE prices for February are also on the rise. Mexico's Pemex raised prices for all grades of PE, effective ­February 1. Its LDPE and LLDPE prices went up by 3%, while its HDPE prices went up by 3.5% for blow molding applications.

Prices for some grades of HDPE for ­injection applications went up by 4.5%, with one grade showing only a 2.5% increase.

In Chile, US-based Dow ­Chemical increased its LDPE price by $100/tonne in February, while other grades increased by $50/tonne.

Local Chilean distributors also implemented price increases, saying that LDPE will cost them in excess of $1,700/tonne - which would translate to prices of about $1,880/tonne DEL or more for small volume consumers. LLDPE prices for February are expected to be $1,800/tonne or more for low volume customers.

Additional reporting by Malini Hariharan in Mumbai, Cuckoo James in London and Michelle Klump and George Martin in Houston

Author: Feliza Mirasol, Ong Sheau Ling, Malini Hariharan, Cuckoo James Michelle Klump and George Martin

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