By John Richardson
Here is the first of a three blog posts on what is happening in China's polyolefins markets.
Today, we look at the Middle East and tomorrow and Thursday we present the perspective of traders and Western-headquartered polyolefin producers.
The series is in response to what we believe is a turning point. Last week's steep price falls (polyethylene was down by $90-130/tonne and PP by $70-130/tonne, according to ICIS pricing) indicate that China faces far-deeper economic problems than some people believe. What applies to polyolefins also applies, as is often the case, to many other petrochemicals.
SAUDI ARABIAN polyethylene (PE) producers have been forced to cut offer prices twice in the last few weeks, in response to exceptionally weak Chinese demand, the blog has been told.
A few weeks ago, offers were cut substantially for May cargoes compared with April with a further smaller reduction made last week across most grades, says a source.
This suggests that Middle East producers in general may no longer be able to "hold the line" against the pressure for deep price reductions.
Naphtha-based competitors, as a result of the lower Saudi offers and a general decline in the market, have therefore gained no benefit from the fall in naphtha costs - the result of weaker crude.
But even in Saudi Arabia, with its unbeatable feedstock-cost position, producers are worried about netbacks.
Further concerns have been raised by the start-up, due by end-Q2, of the Saudi Polymers plant in Saudi Arabia. This comprises a 550,000 tonne/year high-density PE (HDPE) plants and a 440,000 tonne/year polypropylene (PP) facility.
QAPCO is expected to start-up its 300,000 tonne/year low-density PE (LDPE) in Qatar by the end of May.
Saudi Kayan Petrochemical Co's 300,000 tonne/year LDPE is also due to come on-stream in Saudi Arabia in Q3, according to ICIS (as we shall discuss tomorrow, LDPE is in particularly bad shape).
The big debate in the Middle East, as is the case everywhere, is whether Chinese buyers will return in big numbers once they believe that pricing has bottomed out.