Price and market trends: Middle East PE, PP supply to tighten in Q1 2013

11 January 2013 11:32  [Source: ICB]

A total of 10 plants in the Gulf Cooperation Council (GCC) region have been or will be shut for about one month each

Congestion at Saudi Arabian ports has led to delivery delays

Copyright: RexFeatures

The supply of polyethylene (PE) and polypropylene (PP) will tighten as the market enters 2013, because of a slew of ongoing and impending shutdowns at facilities in the Gulf Cooperation Council (GCC) region, market players say.

The affected PE and PP grades include linear low density PE (LLDPE), high density PE (HDPE) and homo polymer PP grades, where a total of 10 plants have been or will be shut for about one month each, they added.

The estimated production loss to be incurred as a result of the confirmed plant turnarounds is at 118,000 tonnes of LLDPE, 353,000 tonnes of HDPE and 238,000 tonnes, accounting to 2.2-6.3% of the total nameplate capacities in the GCC region, according to ICIS.

Spot availability in the GCC region has started to dwindle since Borouge began scheduled maintenance at the end of November for its production lines.

"Customers across Asia have felt the tighter supplies from Borouge, especially [since] allocations have been cut," an Indian trader based in Mumbai said.

PE, PP producers based in the GCC primarily export their resins to Asia and other regions such as Africa, Europe and Turkey. The GCC consists of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE).

"Given the prevailing low inventories with importers and converters across Asia and the Middle East, it will be crucial for them to acknowledge that spot cargoes may not be as widely available heading into the first quarter of 2013," a Saudi Arabian PE and PP producer said.

"Perhaps this is the time for buyers to stock up some inventories, before they fall short when shutdowns begin or demand starts to pick-up," another Saudi Arabian PE, PP maker said.

Asian and Middle Eastern converters have been holding on to ample stock levels of resins because of the uncertain price outlook and lull in downstream demand as the inventories of finished goods remained high.

Besides the several planned shutdowns, congestion at ports in Saudi Arabia is also an urgent issue, where Saudi Arabian producers had to cope with the vast volumes of resins stuck in transit, industry players said.

"Delays are still seen for Saudi origin [material] and it will continue. We just have no idea when [the] situation will get better," a Pakistani trader based in Karachi said.

A Saudi Arabian maker managed to divert its parcels by land to UAE before dispatching them by sea to its customers in Asia.

"Producers (based in Saudi Arabia) are finding ways to cope with their inventories, especially [since] sales weren't fantastic in December, [leading] to some build-up in stock levels," a third Saudi Arabian PE and PP producer said.

Apart from poor supply from the GCC in the first quarter, exports from Iran have yet to normalise as the paperwork involved for Iranian PE makers to reinstate their export status lengthened the process of dispatching cargoes, market players said.

Although the Middle East will see a heavy plant shutdown schedule in the first quarter, some market participants expect the impact on prices to be limited as these turnarounds are planned.

"These are planned turnarounds and producers will certainly have made arrangements with their customers, so supply may not be as tight as the numbers will tell," a Dubai-based trader said.

Buying appetite from across Asia and the Middle East is expected to remain small, as buyers work on a hand-to-mouth basis, the trader added.

"We can't say prices for sure will hike, but at least we are safe to say that we don't see a reason for prices to fall [for LLDPE, HDPE and PP]," another Dubai-based trader said.

Prices across the Middle East have been hovering in a tight range in the last quarter of 2012, despite a traditional demand lull towards the year end.

"Prices have already been relatively high at the moment, so unless demand improves, we will [see] some upward push in prices," a film converter based in Saudi Arabia said.

Author: Sheau Ling Ong

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