Source: ICIS pricing Weekly Asian PE Margin Report
By John Richardson
The slide above shows how Northeast Asian naphtha-based polyethylene (PE) producers are struggling as a result of the weak China market (dark blue bars).
And it confirms what we were discussing yesterday: The US, with its ethane advantage and with reportedly high producer inventories, is in a very strong position to export to China (light blue bars).
Northeast Asian operating rate cuts have clearly not been enough to restore profitability.
"One Japanese producer, for instance, is talking of overall PE production cuts of as much as 30 percent, but I still feel that this is not enough," said an industry source.
"Formosa closed its No3 1.2m tonne/year cracker down for market reasons, but that was only for a couple of weeks. I feel we need long-term closures," he added.
And he said that Chinese state-owned producers continue to lose money.
"They are still running their plants as utilities to guarantee supply to downstream industries and are, thus, matching Middle East import prices at $300-400/tonne beneath their costs."
The chart also shows the improving margins of European producers (purple bars).
"European margins are good on low naphtha costs and favourable exchange rates for exports," said the ICIS European polyolefins editor, Linda Naylor.
"A lot of PE and polypropylene (PP) is being exported - for example, one producer plans to double its PP exports.
"Some producers have been considering production cutbacks, but for most of the producers, margins are too good to curtail production.
"But everyone is expecting a fall in July ethylene and propylene contract prices, which, I think, will impact margins and prompt cutbacks.
"Buyers are concerned that production cuts in July/August, along with increased exports, will tighten the market and drive prices up again in September and October."