Price and market trends: Middle East polyolefins prices poised to fall on capacity

06 January 2014 00:00 Source:ICIS Chemical Business

Polypropylene (PP) and polyethylene (PE) prices in the Middle East may fall in 2014 on increased supply from capacity additions in the region and a possible lifting of international sanctions on Iran, industry sources said.

“With more and more new supply coming in, there will definitely be a downward correction of both PE and PP prices in 2014,” a trader based in the East Mediterranean region said.

The United Arab Emirates’ (UAE) Borouge will raise its olefins and polyolefins capacity to around 4.5m tonnes/year from 2m tonnes/year currently, with the scheduled commissioning of the Borouge 3 petrochemical complex in Abu Dhabi in 2014.

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More polyolefins will be coming out of the Middle East

“The commissioning of Borouge 3 will likely be a huge factor. So much new material – where is it going to go?” said a convertor based in the UAE.

Borouge 3 includes the construction of a 1.5m tonne/year ethane cracker; two Borstar PE plants with a combined capacity of 1.08m tonnes/year; two Borstar PP plants with a combined capacity of 960,000 tonnes/year; and a 350,000 tonne/year low density PE (LDPE) unit.

German engineering company Linde was awarded the contract to build the cracker, which is Borouge’s third at the site.

“Middle East producers will keep more material within the region, dampening prices further,” the Dubai-based trader said, citing that recent capacity additions in Asia will likely be absorbed by China.

ASIA CAPACITY

In Asia, ExxonMobil Chemical commissioned a new 500,000 tonne/year PP plant and two new 650,000 tonne/year PE units in Singapore in 2013.

Wuhan Petrochemical, meanwhile, commissioned in 2013 a 300,000 tonne/year linear low density polyethylene (LLDPE) plant, a 300,000 tonne/year HDPE plant and a 400,000 tonne/year PP plant in China.

Also in China, Sichuan Petrochemical started operating a new 600,000 tonne/year PE plant and a 450,000 tonne/year PP plant in 2013.

Meanwhile, a possible lifting of the sanctions on Iran would free up more polyolefins supply in 2014 and could further exert downward pressure on market prices.

Iranian producers are currently selling their polyolefins output at below market prices to entice buyers given the difficulty posed by the sanctions to any entity dealing with the Middle Eastern country, which is suspected of developing a nuclear weapon.

A breakthrough agreement between Iran and major world powers on 24 November 2013 over the country’s nuclear programme included easing of the sanctions in exchange for Iran agreeing to curb its uranium enrichment activity.

GCC graphs

But Iran’s PE and PP makers are expected to continue with their low-pricing policy even when the sanctions are lifted, to draw buying interest.

“Iran is unlikely to up its prices in line with the market. It needs to incentivise the sale of its petrochemicals back to its old customers,” said a Dubai-based trader.

The removal of sanctions could also lead to lower crude oil prices and consequently, softening costs of propylene and ethylene, as supply of Iranian material into the global market increases.

DEMAND OUTLOOK

On the demand front for PE and PP, some improvement can be expected on the back of new infrastructure and construction projects in the Middle East that will kick off in the coming years.

“Although not immediately, we will see an improvement in demand because of huge mega projects in the Gulf Cooperation Council (GCC),” a Saudi-based producer said.

Qatar is expected to see a strong spike in plastics consumption as it will get busy preparing infrastructure for the hosting of the FIFA World Cup in 2022.

Saudi Arabia, on the other hand, will also see a robust increase in its plastics requirement with its plan to build at least a million new houses before 2020.

Dubai, meanwhile, will host the World Expo 2020 that should boost its polyolefins demand as more construction projects take off in the next three years, Dubai-based traders said.

By Muhamad Fadhil