Global PE, PP trade flows could change on oversupply, poor demand

16 July 2013 15:03  [Source: ICIS news]

By Jo Pitches

LONDON (ICIS)--Global trade flows of polyethylene (PE) and polypropylene (PP) could change as supply increases while demand in much of the world remains muted, participants in the African PE and PP markets said this week.

Despite African demand for PE and PP being subdued, the continent could be the target destination for surplus volumes not able to be placed elsewhere, participants said.

A distributor spoke of a US surplus of linear low density PE (LLDPE), adding that while Europe had temporarily absorbed some of the surplus, the European summer holidays mean that demand in Europe is poor, and this is no longer an option.

“The US is offering volumes on a spot basis. They will send it where it can get the best price,” the distributor said.

A producer said: “The west coast [of Africa] will be under some threat, and the north [of Africa, from US exports]. [Sending to] China’s not an option. The South [Africa] would be a waste of time [because South Africa is largely self-sufficient in PE and PP production]. East [Africa] is not worth it, you can only move a few thousand tonnes there.”

Competition among polymer producers for the east African market is rife.

“It’s every man and his dog,” the source added. “Indian volumes [arrive in east Africa]. Indians are running the plastics business there.”

A second producer agreed that it is plausible that the surplus US volumes could be sent to Africa as there are few other options. “Buying appetite is not too big in north Africa,” the source added. “Europe, Turkey, all in the same direction... Something has to give. China growth rates have been revised down.”

New PE and PP capacities coming online in Asia and the Middle East are also posed to impact global trade flows.

While some producers have recently said they feel there will be little impact on the African market, and that any influence will unlikely be felt until the end of this year or early next year, other participants disagree.

The first producer said the impact of the new capacities could be felt in August:

“China has new capacities. Demand will be slow. Africa could be the destination for all the surplus. Large parts of Africa don’t produce [PE and PP]. It’s almost completely dominated by distributors.”

The distributor said: “Demand is not so strong. Customers are in no hurry to buy. I believe Middle East producers have already dropped July prices [for Africa]. Official prices are still the same, but unofficial prices are lower. Some of them [producers] are concerned about new capacities coming up. The impact would be felt in August.”

“Producers might have to reduce operating rates,” the source continued. “The Middle East [producers] are in the best cost position - at this time they can beat anyone in the world and make money, except when the US produces from shale three years from now.”

The distributor said that Middle East PE/PP producers are becoming more engaged in markets they were not involved in before.

“They’re not so dependent on China,” the source said. “They're looking five years ahead. They're globally networked and sharp in costing. There'll be a bloodbath [when the US starts producing from shale gas]. The US will come up with all the [PE/PP] capacity.”

By: Jo Pitches
+44 208 652 3214

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