News focus: New polyolefins capacity could shift trade flows

08 November 2013 15:50  [Source: ICB]

Polyolefins capacity is set to come on in the Middle East and Asia. More material may be shipped to Latin America

With a number of new polyolefins plants coming on line in the Middle East and Asia, global supply of both polyethylene (PE) and polpropylene (PP) is likely to outweigh demand in the coming years.

This could result in a change in trade flows as large consumers such as China become more self-sufficient.

Both PE and PP capacity have increased and are set to continue to do so.

“That’s a million dollar question,” a distributor in the west African PE and PP markets said when asked what impact the new plants might have on the global markets. “Will the world be able to absorb the new capacities?”

The consensus is that Middle East producers in particular may have to increase sales to other regions. A PE/PP producer selling to both the African and European markets said: “There are new capacities coming up in China, so their need for imports will decline. The Middle East will need to sell somewhere else.”

“With more Chinese production coming in, the trade flows will have to change, particularly from the Middle East,” another distributor in the African PE and PP markets said. “They [Middle East producers] will have to find new markets.”

Net importers such as Africa and Latin America are considered prime targets.

The producer said: “The African market could be more developed. [There will be] new opportunities.”

“They’re [Middle East producers] preparing for two to three years ahead because of shale gas [in the US]. Regarding Latin America, Brazil has Braskem. They [Latin America] have production in Colombia, Chile and a bit from Mexico, but they’re dependent on the US for big supplies,” the distributor said.

“But the US market is booming. This will affect availability [of PE and PP] for Latin America. The Middle East [producers] will have an opportunity [to sell to Latin America],” it added.

When asked whether Middle East producers would be more likely to sell to Africa or Latin America, the distributor explained that freight rates are slightly lower to the latter, at around $100/tonne from the Middle East to the east coast of Latin America.

The transit time is around 45-60 days, the source said.

In contrast, sending volumes from the Middle East to west Africa costs around $110-120/tonne, although the transit time is lower, at 35-40 days, the source added.

A Middle East PP producer also said freight rates to Latin America are cheaper than to Africa. Two Middle East PP producers agreed that west Africa in particular could be a target for producers looking to sell surplus volumes.

“More newcomer producers will target traders in west Africa,” one said, adding that there is a greater number of traders in west Africa compared with the other regions of the continent.

“There are more traders in west Africa, the payment terms are different in west Africa,” the producer continued. “There’s more flexibility regarding payment terms. They [buyers] have money but don’t know how to reach suppliers. Information [from producers] is not reaching the customer. Traders are therefore very much needed.”

However, it may not necessarily be easy to sell increased volumes to west Africa. “Africa – the growth is there, the market is expanding every year,” the distributor in the west African market said. “Africa is the ‘new frontier’, but it’s not easy to go down in the bush. It all depends how much of this new capacity comes in and when. ExxonMobil, for example, they haven’t come up fully yet in southeast Asia.”

ExxonMobil shut down some units at its Singapore chemical complex from 28 September for planned maintenance.

“There’s shale gas [in the US],” the source continued. “Saudi Aramco has been delayed to 2015. My gut feeling is that for 2-3 years there shouldn’t be a big impact.”

“There are security issues [with selling to Africa],” one of the Middle East PP producers said. Furthermore, as with other regions, the African markets are suffering high costs too.

“Utilities have gone up, prices of raw materials are high,” the distributor said. “Customers are feeling the pinch.”

If it is not possible to sell to emerging markets, reducing production is an alternative.

“Of course, the other option is to lower production,” the first distributor said.

A producer agreed that this could happen. “Global supply is greater than demand,” a Middle East PP producer said. “Margins will decrease. Producers may have to cut production rates.” However, other participants appear to be taking a wait-and-see approach.

Another Middle East PE/PP producer said: “It’s difficult to say [what will happen]. We expect China’s supply growth to be in line with demand. We don’t see a significant change yet. It’s difficult to say.”

By: Jo Pitches
+44 208 652 3214

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