By Malini Hariharan
High density polyethylene's (HDPE) premium over linear low density PE (LLDPE) is likely disappear in the second quarter reversing a trend that has lasted for nearly a year.
LLDPE supply is getting tighter with few capacity additions due this year. Additionally plant turnarounds in Asia and the Middle East are also likely to curtail availability, point out the Bee Lin Chow and Sheau Ling Ong in this report on ICIS news.
Swing producers have also been focusing on HDPE as the product has so far offered better returns. But they may have to rethink their decision later this year.
One Middle East producer has predicted that LLDPE prices will be $50-60/tonne higher than HDPE in 2012 and 2013.
This will be a significant change from the current situation where LLDPE is around $100 cheaper than HDPE film grade in China and Southeast Asia.
And in comparison, between August 2009 and April 2011, LLDPE was priced at a premium of as much as $130/tonne to HDPE in China, India and southeast Asia, according to ICIS.
While capacity addition in LLDPE has slowed down HDPE volumes are set to grow this year once Saudi Polymers commissions its plants with a total capacity of 1.1m tonnes/year. The company is widely expected to start commercial operations in Q2.
Iran is also due to commission two swing plants in 2012 and 2013 but the start up schedule remains uncertain given the political problems and economic sanctions that the country faces.
Meanwhile, PE producers in Asia and Europe are continuing to push for higher numbers. The blog is hearing of an upturn in pricing this week in China and producers in India have also announced price hikes.
In Europe, PE prices are approaching record high levels with producers targeting an increase of $200/tonne following an increase in ethylene contract prices, writes Linda Naylor in a report on ICIS news.
European PE prices in 2012 have already risen by more than 20%, and the new proposed hikes would take the amount of increase beyond 30% if implemented.
With crude oil trading at a 43-month high, naphtha-based producers in Asia and Europe are under pressure to raise prices. But whether this can be sustained remains to be seen.