FocusAsia LLDPE to command price premium to HDPE on tight supply

01 March 2012 07:50  [Source: ICIS news]

By Chow Bee Lin and Ong Sheau Ling

Asia LLDPE to command price premium over HDPE on tight supplySINGAPORE (ICIS)--Asia’s linear low density polyethylene (LLDPE) film-grade resin may regain its price premium to film-grade high density polyethylene (HDPE) in the second quarter, given the tightening supply of the softer polymer, industry sources said on Thursday.

A lack of capacity additions and the lower production rates of LLDPE in the region as well as plant turnarounds and recent outages at facilities in China and the Middle East will reduce the availability of spot material through next year, they said.

“LLDPE [prices] will be [on average] $50-60/tonne (€38-45/tonne) higher than HDPE in 2012 and 2013,” a Middle East producer said.

Between August 2009 and April 2011, butene-based LLDPE was priced at a premium of as much as $130/tonne to HDPE in China, India and southeast Asia, according to ICIS data.

However, the price premium of LLDPE to HDPE narrowed significantly then reverted to a discount by the middle of the second quarter of 2011 as HDPE prices rose on the back of reduced production rates, ICIS data showed.

In the week ended 24 February 2012, LLDPE was on average priced at around $110/tonne cheaper than film-grade HDPE in China and southeast Asia and $5/tonne below film-grade HDPE in India, according to ICIS data.

This price trend is expected to change in the second quarter of this year, as a number of LLDPE plants in China will be shut for maintenance, while supply from the Middle East is still being curtailed following outages at major facilities in January, they said.

Producers with LLDPE/HDPE swing plants have decided to produce more HDPE this year as the product can fetch much better margins, industry sources said.

While new HDPE and LLDPE plants are scheduled to come on stream in China this year, these can be started up only in the second half, according to Chemease, an ICIS service in China.

“LLDPE supply will be tight in 2012 and 2013 because of the lack of capacity additions,” a source at a Middle East PE producer said.

Two HDPE plants in the Gulf Cooperation Council (GCC) region, with a combined production capacity of 1.1m tonnes/year, will come on stream in 2012. This is a stark contrast to the zero addition to LLDPE capacity in 2012 and 2013, industry sources said.

Three HDPE/LLDPE swing plants with a combined capacity of 900,000 tonnes/year are scheduled to come on stream in Iran in 2012 and 2013, but the start-up of these plants are likely to be delayed, industry sources said.

A tightening of international sanctions against Iran makes it difficult for the country to secure financing and procure equipment for its major petrochemical projects.

However, Iran’s LLDPE capacity expansion may not ease the tight supply in Asia as most of the country’s output will likely be supplied to its domestic market, a regional trader said.

Inter-trade transactions in China for film-grade LLDPE and HDPE were done at $1,300-1,330/tonne and $1,380-1,390/tonne, respectively, on a CFR (cost & freight) China basis, on 29 February, market sources said.

Film-grade LLDPE was assessed at an average of $1,415/tonne while film-grade HDPE was at $1,420/tonne on a CFR Mumbai basis, in the week ended 24 February, according to ICIS.

($1 = €0.75)

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

By: Chow Bee Lin
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