22 November 2012 16:22 [Source: ICB]
Trade flows of polyethylene (PE) and polypropylene (PP) may well be altered in 2013 because of new capacities that have been coming on stream in the second half of 2012. A lack of expansions in 2013, growing regional demand and tax changes in export markets are also expected to have an impact.
Supply from the Gulf region is expected to become more plentiful in 2013, given recent start-ups at the end of this year, namely those of Saudi Polymers Co (SPC), Qatar Petrochemical Co (QAPCO) and Saudi Kayan Petrochemical (see table below). The addition of these new capacities has raised the region's low density polyethylene (LDPE) capacity by 56%, high density polyethylene (HDPE) capacity by 20% and PP capacity by 6%.
"These new plants will run at optimum rates by end of this year and the market will feel the full supply by early next year," a Saudi Arabian polyolefins maker notes. However, the capacity additions do not include linear low-density polyethylene (LLDPE) and, moving into 2013, the region still has no firm plans for new LLDPE capacity.
"This is disturbing to us. We are adding new converting lines next year and we may have to source LLDPE resins from outside the region," a global processor with converting units in Saudi Arabia and United Arab Emirates (UAE) says, adding that it may need to bear higher costs because of the import duty imposed into Saudi Arabia.
Traditionally, converters based in the Gulf source their polyolefins resins regionally, except HDPE pipe, and do not import from producers elsewhere. However, the shift into HDPE pipe production by regional HDPE producers has brought supply saturation of regionally produced material in the Gulf Cooperation Council (GCC) region as well. "This may change. Supplies may now be of Asian origin," a GCC-based film converter says.
Despite the greater than 50% increment in HDPE and LDPE supplies, regional converters do not feel that the region's supplies will increase in tandem. "These new plants are planned to target export markets such as Asia as well as neighboring markets such as Europe, Turkey and northern Africa," one of the affected polyolefins maker explains.
"It doesn't mean that with more new plants, we will be supplied with more resins. Producers are planning otherwise," a third GCC-based converter adds.
Supply in early 2013 may not be all that abundant, as Borouge plans a major turnaround at its polyolefins facilities in Ruwais, Abu Dhabi, in December 2012 and February 2013. At the Borouge 1 complex, the company's PE plant, which consists of two lines of LLDPE - each with a nameplate capacity of 300,000 tonnes/year - will be shut this December.
At the Borouge 2 complex, meanwhile, its 540,000 tonne/year HDPE unit and its 800,000 tonne/year PP plant, with two lines of a nameplate capacity of 400,000 tonnes/year each, will be shut from February 2013.
Several converters based in the Gulf are in discussion for volumes and contracts for 2013, with some expressing concerns over supplies of certain grades, especially if they are expecting to expand their converting capacities next year. "We have to secure our resin supplies and if the eurozone situation improves in 2013, we may have to source our supplies from Asia, if regional suppliers here can't satisfy our need," an export-orientated GCC-based converter says.
Besides optimistic expectations on export markets, domestic polyolefins' demand in the Gulf region will likely grow at similar rates of low-to-mid single digits in 2013, similar to 2011. "Up till now, 2012 wasn't really a good year, but we do hope 2013 will resume at least back to 2011's level," a key GCC-based converter comments.
In 2011, the consumption of PE and PP in the Gulf were at 1.5m tonnes and 660,000 tonnes respectively, according to industry estimates.
Apart from increased supplies in the Gulf resulting in more exports, tax changes in export markets have also affected the trade flow in the GCC region. Higher import duties were introduced in Turkey in early September, which have reduced export opportunities of GCC-based PE and PP producers. PE and PP originating from the GCC accounts for about 80% of the imports into Turkey.
Turkey implemented a 4.8-6% import duty on LDPE, HDPE and PP from developing countries, depending on grades from early September. Developing countries include GCC countries, Iran and India, with Iran LDPE subjected to an additional 7% tax.
No change in import duty of 3% is observed for LLDPE, while European and Israeli polyolefins exports to Turkey remain tax-free.
Previously, Egypt had imposed a 15% duty on all imports of PP homopolymer grades from 5 June for 200 days, but the local government froze the duty recently, in response to a report challenging the import duty, submitted by a group of GCC makers on 3 September.
The government decision has come in the wake of plant shutdown at Egyptian Propylene and Polypropylene Co (EPPC) in early October for two weeks, the chief local PP supplier for Egyptian converters. EPPC's PP plant in Port Said has a production capacity of 350,000 tonne/year and supplies mostly homopolymer PP to the Egyptian market.
One of the reasons for the introduction of the import duty in Egypt was the rising cost pressures on Egyptian producers from loss of feedstock from Libya. "It remains unclear whether the [Egyptian] government will lift the freeze on the import duty. If the import duty resumes, that will hurt our export business," says a GCC-based PP producer. GCC-originated PP homopolymer grades account for the bulk of imports into Egypt.
Elsewhere, in India, initial discussions were heard for the lifting of the anti-dumping duties (ADD) imposed on Oman-originated PP imports. This came after the lifting of ADD implemented on Saudi Arabian PP cargoes, with effect from 30 December, announced by India's Central Board of Excise and Customs.
A total of eight Saudi companies will now enjoy zero ADD, unlike their counterparts in Singapore and Oman (see table opposite). Previously, Saudi Arabia's, Oman's and Singapore's PP products were subjected to an ADD of $28.49-323.50/tonne, effective from mid-2009, for a five-year period.
Not all changes in taxes may have an impact on the influx of GCC-originated polyolefins products. In Pakistan, the reduction in the sales tax from 22% to 16%, effective from 1 June, announced in early June in Pakistan's 2012-2013 Budget, did not boost import volumes. "Initially, we were excited about the sales tax cut, bringing down the overall taxes for polymer imports. However, the general poor macroeconomic conditions have minimized the good impact. We see little increase in the import volumes in general," notes a Karachi-based trader.
Nevertheless, most Pakistani importers feel that the reduction in sales tax will spur demand and boost imports in the long run.
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