OUTLOOK ’15: Mideast PE, PP to be weighed down by oversupply concerns

Muhamad Fadhil

22-Dec-2014

By Muhamad Fadhil

PE has several packaging applicationsDUBAI (ICIS)–Middle East polyethylene (PE) and polypropylene (PP) are expected to be weighed down by oversupply concerns, leading to cautious buying activity in the first quarter of 2015, industry sources said.

“For 2015, everyone will be concerned about oversupply of PE and PP in the region,” according to a Dubai-based plastic convertor.

Polymer demand in the fourth quarter of 2014 in the Middle East was extremely soft due to significant plunges in crude oil prices.

“The weak crude prices translated to lower propylene and ethylene offers. The lower feedstock prices exerted [downward] pressure on PE and PP,” according to a separate buyer based in the Middle East.

Crude had lost 40% of its value since June, when buyers were concerned about potential supply disruptions in Libya and Saudi Arabia, according to ICIS data.

Even if the prices of upstream products stabilise early next year, polymer offers are expected to come under severe pressure due to new polymer capacities coming onstream from Middle East, industry sources said.

By early 2015, Borouge is expected to start ramping up its production at the third phase of its expansion in Abu Dhabi, also known as Borouge 3.

Borouge 3 will raise the company’s olefins and polyolefins capacity to around 4.5m tonnes/year from 2m tonnes/year currently.

Borouge 3 comprises a 1.5m tonne/year ethane cracker and derivative plants, including high density PE (HDPE) and linear low density PE (LLDPE) units with a combined capacity of 1.08m tonnes/year; a 350,000 tonne/year low density PE (LDPE) unit; and two PP units with a combined capacity of 960,000 tonnes/year.

A new petrochemical complex in Saudi Arabia operated by Sadara Chemical Company is also expected to start up sometime in 2015 and will see an estimated 350,000 tonnes/year of LDPE being produced.

The supply glut may prompt Middle East producers to lower polymer prices to spur buying interest.

“The new capacity will likely dampen buying sentiment. Producers may be forced to lower prices,” according to a source close to a Middle East distributor.

Middle East producers may also offer fewer volumes to Asia with new start-ups of coal-to-olefins plants in China.

“China may be less reliant on Middle East products and may even compete with the region at one point,” according to a Middle East polymer source.

China’s coal-based polyolefins capacity is expected to hit 5.96m tonnes by the end of 2014, a sharp surge from 2.16m tonnes/year the previous year.

As a result of the oversupply situation and weaker import demand from China, Middle East producers may need to target undeveloped or untapped markets to maintain their profit levels.

“Can Middle East producers sell more within the region? If not, suppliers may need to look for new buyers in regions such as Africa and south America,” a Dubai-based PE trader said.

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

READ MORE

Global News + ICIS Chemical Business (ICB)

See the full picture, with unlimited access to ICIS chemicals news across all markets and regions, plus ICB, the industry-leading magazine for the chemicals industry.

Contact us

Now, more than ever, dynamic insights are key to navigating complex, volatile commodity markets. Access to expert insights on the latest industry developments and tracking market changes are vital in making sustainable business decisions.

Want to learn about how we can work together to bring you actionable insight and support your business decisions?

Need Help?

Need Help?