23 August 2013 09:29 [Source: ICB]
Linear low density polyethylene (LLDPE) is a thermoplastic used mainly in the film sector. LLDPE is typically used as film for food and non-food packaging, shrink and stretch film and non-packaging uses. Other uses for LLDPE include injection-moulding products and wire and cable applications.
Demand in China and southeast Asia firmed in the first quarter of 2013 on strong downstream sales leading up to the Lunar New Year holiday in February. However, demand softened significantly shortly after the Chinese holiday as end-users held on to excess inventories.
Demand for the product in India was stable-to-firm in the first quarter amid tight supply from the Middle East. However, in the second quarter of 2013, India's appetite for LLDPE imports weakened in the wake of the rupee's plunge, and amid higher duties on polyolefin imports. In Pakistan, demand for Saudi and Asian PE imports was soft because of a surge in inflows of cheaper cargoes from Iran.
Asian market players said new capacities coming on stream in Asia in the third quarter of 2013 may flood the market. They include ExxonMobil's two new 650,000 tonne/year PE units in Singapore; Wuhan Petrochemical's 300,000 tonne/year LLDPE plant; and Sichuan Petrochemical's 600,000 tonne/year PE plant. As a result of the new capacities, producers do not rule out cutting back production at their plants to remain competitive.
According to market players, demand for metallocene linear low density polyethylene (mLLDPE) in Asia remains stable to firm. India's Reliance Industries Ltd (RIL) is expected to start its 140,000 tonne/year mLLDPE plant in Nagothane by the end of this year.
LLDPE prices in China were mostly in the mid-$1,300s/tonne (€975/tonne) to the low $1,400s/tonne on a cost & freight (CFR) basis in the first half of 2013, while in India it is typically $30-50/tonne higher.
Producers said margins remain poor, and that they may try to push for higher prices, citing firming feedstock ethylene prices in Asia. They said margins need to improve as lower profits are hurting their bottom line and ability to push more material into the open market.
Foreign producers selling LLDPE into India are inclined to keep their offers in the mid- to high $1,400s/tonne in a bid to improve margins. The lower margins for Asian producers may force them to look at alternative markets such as Pakistan and Bangladesh, where LLDPE demand remains strong.
Asia mLLDPE prices remain in the high $1,500s/tonne to mid-$1,600s/tonne CFR in the first half of 2013, and prices are expected to remain stable for the rest of the year.
LLDPE is produced by adding alpha-olefins (butene, hexene or octene) during ethylene polymerisation to produce a resin with a similar density to low density polyethylene (LDPE), but with the linearity of high density polyethylene (HDPE).
Solution, slurry or gas-phase processes are used and many processes can swing between LLDPE and HDPE production, although plants tend to be dedicated to one or the other. The gas-phase process dominates, accounting for most of global production.
The introduction of metallocene catalysts enabled the production of resins, with narrow molecular weight distribution leading to improved physical properties.
Market players expect LLDPE to grow in high single digit figures in 2013 amid stable-to-firm downstream demand likely for most of the year. However, Asian market players also said they are worried about China's ability to absorb the new PE capacity. They said a looming credit crunch and weak macroeconomic conditions in China may dampen buying sentiment.
According to ratings agency Fitch, total credit in China grew from $9 trillion in 2008 to the current $23 trillion. Tightening credit would also mean higher borrowing costs for Chinese buyers, who may remain on the sidelines amid uncertain near-term prices. Southeast and south Asia market players look to China as a key market driver for LLDPE, and may hold back on buying new material if downstream demand in the country softens.
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