Iranian PE Seen As Threat To China Price Recovery

By John Richardson

IRANIAN polyethylene (PE) exports to China could help to cap or even prevent a recovery in pricing during the second half of this year.

Although in volume terms, Iranian material only accounts for a small percentage of the total market, in sentiment and therefore price-setting terms, it seems to be playing an increasingly important role.

Shipments of low-density PE (LDPE) to China from Iran have in particular increased quite sharply in January-May of this year compared with the same period in 2009, according to my colleagues at ICIS pricing.

A report on ICIS news yesterday said that Iranian shipments to Pakistan were consistently $30-40/tonne below cargoes from other Middle Easern countiries, in order to offset the impact of worries over delayed shipments.

“Iranian material to China is also nearly always priced below material from other countries because of reliability of supply and sanctions issues,” said a Shanghai-based polyolefins trader.

“Concerns over reliability of supply relate to difficulty in always achieving stable production at Iranian plants.

“And because of the increasingly tough sanctions regime, the Chinese buyers are in a strong position as they know that Iran now has fewer other options.”

One other option is to move Iranian material to Iran, place it in bonded warehouses, and then re-export it to Southeast Asia and elsewhere..

“When these re-exports occur – which are never great in total volume and can also involve shipments to China from other destinations – this is taken as a sign that a market is in severe distress. This can contribute to sudden and quite sharp declines in the CFR China price,” the trader added.

As we reported earlier this week, there are plenty other reasons to believe that further downward pressure on PE is likely to continue for the next few months. One consultant sees no light at the end of the tunnel until as late as the second half of next year.

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