SE Asia PE buyers wait for prices to drop in spot market

Arianne Perez

26-Aug-2014

Focus story by Arianne Perez

Polyethylene (PE) bagsSINGAPORE (ICIS)–Southeast Asian buyers of polyethylene (PE) resins in the spot markets have opted to stand on the side lines waiting for prices to drop for September-loading cargoes, industry sources said on Tuesday.

Most buyers for spot PE resins did not enter their respective markets in the week ended 22 August, and instead are waiting for clearer price directions in the coming week when some September-loading cargoes would be offered, mostly from the Middle East producers.

Offers for September-lifting PE resins from southeast Asian producers typically start at the start of each month.

Buyers are under the impression that PE prices should see a downward correction of up to $20-30/tonne as a result of bearish market sentiment in China, the falling crude oil, naphtha and feedstock ethylene market, and easing of tight supply in the region.

Crude futures have declined in recent weeks with front month ICE Brent crude futures trading close to 14 month lows. October ICE Brent crude futures closed on 22 August at $102.29/bbl.

The weaker crude is a result of  a well-supplied market buoyed by increased supply from Libya and the US. According to the EIA forecasts US production will reach 9.28m barrels a day next year, the highest annual average since 1972.

Meanwhile, Asia’s naphtha prices may be undermined further by a deluge of supply amid receding demand because of scheduled turnarounds at regional crackers. As much as 1.4m tonnes of deep-sea naphtha inflows are expected to arrive in Asia in October.

While open-spec first-half October naphtha rose by $1.50-2.50/tonne to $903.00-906.00/tonne CFR (cost and freight) Japan on Tuesday morning, the intermonth spread weakened at the close of trade on 25 August, ICIS data showed.

Feedstock ethylene weekly spot prices rose to a multi-year high of $1,560-1,570/tonne (cost and freight) NE (northeast) Asia in early August due to tight regional supply caused by several major cracker turnarounds in Japan, Taiwan and South Korea between mid-August and October.

However ethylene prices subsequently eased to the mid $1,500s/tonne CFR NE Asia in the second half of August on persistently weak downstream demand, increased Chinese domestic supply and the availability of arbitrage cargoes, but most market players, including buyers, do not expect prices to see a sharp correction in the near term.

Market sources expect ethylene supply for September to tighten further as three major northeast Asian crackers will be shut concurrently next month.

China polyolefin market sentiment is expected to dampen in the short term as substantial new nameplate capacities are rolling out, though market analysts expect little impact on the spot market owing to expected low operating rates.

For the Asia PE market, all of these factors alongside increased supply following resumption of production at one plant and restart of an expanded unit has contributed to the weakening of the market sentiment.

Thai producer PTTGC has resumed the production at its 400,000/tonne a year LLDPE plant in Map Ta Phut last week.

Furthermore, Philippine local producer JG Summit has started its naphtha cracker in the previous week. The producer expects to resume offers of PE resins to the local market in the next two weeks.

However, a Middle East producer was heard to be encountering technical problems at its LLDPE plant in the week, which is seen to lend some support to the prices in the coming weeks.

The problem is not expected to be resolved soon, a source close to the matter said.

Suppliers, which are expected to try to hold firm to their high price offers, might have to give in to the softening price ideas as they would also need to discharge inventories to avoid further pile up of stocks around end September, Vietnam-based cargo traders said.

As at week 22 August, prices of liner low density polyethylene (LDPE) were assessed at $1,580-1,640/tonne CFR southeast Asia for both dutiable and non dutiable cargoes.

Prices of linear LDPE (LLDPE) hovered at $,1590-1,640/tonne CFR southeast Asia for dutiable and non dutiable cargoes and high density polyethylene (HDPE) prices ranged at $1,590-1,650/tonne CFR southeast Asia for dutiable and non-dutiable cargoes.

Additional reporting by James Dennis, Yeow Pei Lin, Felicia Loo and Tahir Ikram

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

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