INSIGHT: Mixed signals for near term Middle East PE/PP demand

12 November 2013 16:05  [Source: ICIS news]

By Muhamad Fadhil

SINGAPORE (ICIS)--Every year, Middle East polymer producers are said to look forward to two major Muslim festivals, Eid-ul-Fitr and Eid-ul-Adha.

Festive demand significantly bumps up regional sales volumes of polyethylene (PE) and polypropylene (PP) and drives up profit margins as demand for plastics and other related products increases.

End-users, on the other hand, are often indignant as they can pay up to 20% more for the same material during the two festivals.

Producers have artificially raised offers in the past few months, they said, despite weak downstream demand which they describe for the two polymers as stable to soft. Eid-ul-Fitr fell in August this year and Eid-Ul-Adha in October.

Not surprisingly, perhaps, major Middle East producers disagree, saying demand estimates by end-users are off-the-mark.

In the Middle East and Africa, total PE and PP demand is projected to rise from 12m tonnes in 2010 to an expected 19.9m tonnes in 2020. In fact, an estimated $300bn worth of opportunity is open for the Middle East plastics industry, largely from the building and construction sectors, a major Saudi producer said.

Middle East producers cite these nation- or city-wide developments as major growth drivers for the two polymers:

  • Qatar is expected to see a spike in plastics consumption as it prepares infrastructure for the FIFA World Cup in 2022
  • Saudi Arabia will also see a strong increase in its plastics requirement with its plan to build at least one million new houses before 2020
  • Should Dubai win its bid to host the World Expo 2020, a burst of construction activities will significantly boost PE, PP demand
  • In the UAE, the Etihad railway project and the Abu Dhabi airport expansion are seen as demand boosters for polymers

But end-users are unconvinced, saying that such growth drivers do not reflect current regional demand and supply fundamentals.

“These are mere projections, not a true reflection of reality,” a major PP buyer said recently.

Apart from Eid-ul-Fitr or Eid-ul-Adha, demand for PE and PP resins for most of 2013 has been sluggish due to poor macroeconomic conditions, Middle East buyers said.

They added that despite the huge nation- or city-wide developments, they are not yet seeing a trickle down of demand.

“What strong demand? Middle East economies are weak. Demand is poor and it will take time for demand from such mega projects to emerge,” a key Middle East trader said.

In October, the International Monetary Fund (IMF) said it expects overall economic growth in oil-exporting countries in the Middle East to drop to about 2% in 2013, driven by lower oil production.

Such tepid growth prospects often affect buying sentiment of oil products, consequently impacting demand for PE and PP. 

Polyethylene and polypropylene prices are likely to be weighed down in the near term ahead of the much-anticipated start up of the 2.5m tonne/year Borouge 3 plants in Abu Dhabi at end 2014.

Located in Ruwais, Borouge 3 is expected to raise the company’s olefins and polyolefins capacity to around 4.5m tonnes/year from 2m tonnes/year currently.

Borouge 3 includes construction of a third ethane cracker at Ruwais; two Borstar PE plants; two Borstar PP plants; and a low density PE (LDPE) unit. German engineering company Linde is building the 1.5m tonne/year cracker.

The combined capacity of the two Borstar PE units will be 1.08m tonnes/year while the combined capacity of the two Borstar PP units will be 960,000 tonnes/year. The LDPE unit will have a 350,000 tonne/year capacity.

It remains to be seen whether the new supply from Borouge can be absorbed within the region or whether it has to be exported to China and other parts of Asia, some Middle East market players said.

But, others are hopeful. They admit there is likely to be a dip in demand now that the two festivals are over. But they believe that, overall, prospects for the two polymers remain bright due to population growth and increased demand for speciality products.

“Population will grow in the Middle East so demand will be there, another Middle East trader said. “More plastics will also be needed as we develop more and more speciality products.”

The balance between supply and demand remains mixed for now, but market players in the region believe that business can only get better.

“The Middle East remains a dynamic place. Things may soften in the near term but not for long,” a Saudi producer said.

Read Paul Hodges’ Chemicals and the Economy blog
Bookmark John Richardson and Malini Hariharan’s Asian Chemical Connections blog

By: Muhamad Fadhil
+65 6780 4356

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