Saudi Petchem Production Threatens Recovery

By John Richardson

RISING oil production in Saudi Arabia has resulted in bigger volumes of polyethylene (PE) being delivered into Asia-Pacific markets, a source with a major plastics processor told the blog late last week.

“Saudi Arabia has definitely, in my view, already raised PE production on more availability of associated gas. I am seeing more volumes in our local market,” he said.

Clear evidence emerged last week that Saudi crude production has been on the up for at least two months.

Estimates for June production range from 9.4m barrels a day to 9.8m barrels a day, up from around 9m barrels a day in May.

Crucially, the International Energy Agency believes that Saudi Arabia has continued to raise production in July, possibly already reaching 10m barrels a day. This would, in theory, enable the country to once again run its crackers at 100% due to the greater availability of associated gas.

Saudi Arabia is producing more oil in order to pay for higher social costs following the Arab Spring. Another reason is concern over the effect of high crude prices on the global economy.

Polyolefin prices continued to rise last week – the second week in a row of increases. For example, PE rose on a delivered basis by $20-50/tonne in Northeast and Southeast Asia, according to ICIS pricing.

But with Middle East offers for August material expected to emerge in the third week of July, the big question remains whether the price recovery will be sustained.

Not only is supply not necessarily as tight as traders have argued due to the suspected increase in Saudi production, but also the macro-economic climate in China and elsewhere is getting worse.

The uptick in both prices and volumes over the last few weeks has mainly been attributed to traders re-entering the market on the perception that prices had bottomed.

Doubts are being expressed about how much of these volumes have been passed-on to end-users who remain very nervous about the risks ahead.

, , , , , , ,

Leave a Reply