Middle East petrochemical markets rattled by OPEC decision

Focus story by Muhamad Fadhil

DUBAI (ICIS)–Polymer prices in the Middle East may continue their downtrend as OPEC’s decision not to cut production provides no relief to crude futures, whose free-fall drags down values of most commodities, market players said on Friday.

At midday, US crude futures slumped by more than $4/bbl to below $70/bbl, while Brent was trading a few cents lower at $72.80/bbl.

Polymer buyers expect at least a $80/tonne decline in new December offers for polyethylene (PE) and polypropylene (PP). The offers are due to be announced next week.

“We expect more cuts to polymer prices. Nobody will buy a single tonne more than necessary now,” a Middle East PE trader said.

Over the past three months, high density PE (HDPE) film prices fell by 2.53%, while PP flat yarn prices declined by 3.5% in the Gulf Cooperation Council (GCC) region, according to ICIS data.

Suppliers had earlier held back announcing their new polymer offers for December until after the OPEC meeting on Thursday.

But the oil cartel – which includes Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the UAE and Venezuela – decided to roll over its 30m bbl/day production target for the coming six months.

Market players have been pinning their hopes on OPEC to address the glut in crude supply against the backdrop of softening demand amid global economic weakness.

“We cannot understand the OPEC decision. Everybody is now worried and unsure what to do next,” a Dubai-based commodity trader said.

Brent crude fell to a fresh four-year low immediately after OPEC announced its decision, to settle at $74.36/bbl on Thursday.

OPEC’s decision is expected to lead to a renewed period of volatility in the upstream and downstream markets in the Middle East, industry players said.

“There is a lot of uncertainty now in both the crude and petchem markets,” according to a Middle East trader.

Dubai-based traders said they are unsure when petrochemical prices will bottom out.

“Petchem prices are headed for a free fall,” an Asian based distributor said.

Buyers in the Middle East said they will likely purchase petrochemicals on a hand-to-mouth basis due to price uncertainty.

“We will buy only what is necessary. We are holding on to only minimal stocks,” according to a polymer end-user based in Dubai.

Crude prices have slumped significantly since early October, when concerns about weakening demand was highlighted following the International Monetary Fund’s cut in its global growth forecast to 3.3% for this year and to 3.8% next year.

Global crude production has grown significantly in recent years because of a surge on shale oil supply from the US, while demand from Asia and Europe has started to weaken.

Prior to the OPEC talks, Iran, Venezuela and Nigeria led calls for supply cuts as they require oil prices to be above $100/bbl to balance their national budgets.

Saudi Arabia, the world’s largest producer of crude oil, and Qatar were more reluctant to cut output that will stem the oil price decline, wary of losing market share to the US, industry sources said.

These countries could withstand longer period of low oil prices given their large foreign exchange reserves, market sources said.

And, lower oil prices will make the US’ shale oil projects uncompetitive due to high production costs. US refiners need crude to remain around $70/bbl to break even, according to market estimates.

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