By Malini Hariharan
August could well be the time for some tough decisions by Asian polyethylene (PE) and polypropylene (PP) producers. Demand has languished for the last three months and although many are hoping for a recovery at the end of this month or in early August, there are as yet no signs of this.
The China market is still very soft and producers have no choice but to sell material at whatever price is available. There is strong pressure from buyers to breach the psychologically important $1000 mark.
"We are being pushed to reduce prices below this level for hdPE but we are resisting for the time being," says one South Korean producer.
He admits that there are no positive signals in the China market. Manufacturing in segments such as household appliances usually picks up in July-August but that has not yet happened.
Government efforts to control the country's real estate boom are slowly having an impact. The construction segment, says the producer, is in poor shape with companies holding high stocks of materials such as pipes.
Positive margins have helped polyolefin producers across the region maintain operating rates but they may be running out of time.
"Asia will have to rationalise production in August; the market is fundamentally weak and directionally not looking very good," says an industry analyst.
Even if demand does return next month, the additional requirement can be met through inventories.
He predicts that it will take a few more quarters for the market to digest stocks and volumes from new plants. "I do not see a light at the end of the tunnel until the end of the year," he warns.