FocusMideast PP may extend falls after 11% slump; converters wary

01 June 2012 06:38  [Source: ICIS news]

By Ong Sheau Ling

SINGAPORE (ICIS)--Spot polypropylene (PP) prices in the Middle East may remain on a downtrend for July-arrival cargoes, following an 11% slump for June parcels, with most converters –wishing for stability – keeping out of the bearish market, industry sources said on Friday.

Prices of material for June delivery fell by $180/tonne (€146/tonne) from May settlements, undermined by weakness in the key markets of China and Europe amid the global economic slowdown, they said.

Price quotes were at $1,400-1,460/tonne DEL (delivered) GCC (Gulf Cooperation Council), and at $1,400-1,450/tonne DEL East Med (East Mediterranean) this week for June PP raffia, market sources said.

With prices heading downhill, regional converters are finding it difficult to pass on the high cost of resins bought in April and May to customers, market sources said.

“Further price slides are unavoidable looking at the current weak fundamentals. However, we do wish that the adjustment will come more gradually, so that we have time to pass down the costs to our consumers,” a Jordanian converter said.

The steep price fall came after Middle East PP raffia prices spiked by $245/tonne or by 18.7% over the first four months of 2012, to an average of $1,555/tonne CFR (cost and freight) GCC, according to ICIS.

“Because of the uptrend in prices from January to April, we have built up some stocks. Now, with the sudden plunge in resin prices, our customers are asking for price corrections immediately, which will mean that we have to absorb the high costs,” a Saudi PP converter said.

Another Saudi PP converter said: “Although we did expect some price corrections in June because of softer Chinese and European markets, the adjustment was shocking to us."

In Europe, prices for PP injection were at €1,150/tonne as of 31 May, while in China, average PP raffia prices were at $1,325/tonne CFR China for the week ended on 25 May, ICIS data showed.

Some Middle Eastern converters have indicated that they need a more drastic decline in PP prices to bring down their production costs.

“In order to stay competitive, our resin costs have to come down further. Although the reduction in June was quite significant, we still need to have cheaper resins for July arrivals, because markets in Europe will slow down further,” said a key Saudi film converter, which exports the bulk of its finished goods to Europe.

Also, supply conditions in June and July are expected to normalise, with the Middle East PP facilities - resuming operations from either a maintenance or outage - are expected to run at close to full capacity, industry sources said.

“With better supply conditions and rather moderate demand ahead of Ramadan, prices should correct [further],” a UAE-based trader said.

Ramadan is the Muslim fasting month that will be observed in the Middle East from 20 July.

“Perhaps July will be the bottom price, not so far away from June settlements,” a Saudi major PP producer said.  

Compounding the problems of Middle Eastern converters is the competition posed by a sudden influx of Indian finished goods following the rupee’s plunge against the US dollars.

“The depreciated India rupee gave Indian converters advantage to export their finished goods more competitively. This month, we can see more of such goods appearing here,” a UAE-based biaxially-oriented PP (BOPP) converter said.

Global economic uncertainties are also keeping some regional converters to stay away in the market or delay discussions, market players said.

($1 = €0.81)

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

By: Ong Sheau Ling
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