Europe Markets Lure Asian Polyolefins

By John Richardson

EXACTLY the same scenario is playing out in European polyolefin markets, as in Latin America and possibly the US, my ICIS colleague Linda Naylor reported last Friday.

High polyethylene (PE) and polypropylene (PP) prices in Europe have led to increased offers for re-exported material from China, according to Linda – our European ICIS pricing polyolefins editor.

“Yes, there are imports at present, but I don’t think they will ruin the European market,” said a European PE producer in the same article. “It won’t be European prices falling, but Asian ones going up. Chinese PE producers can’t survive at this level. They will have to cut production.”

Reports from one chemicals analyst, of heavier naphtha purchases by Asian cracker operators during January, which we discussed last week, suggest more rather than less supply.

Perhaps the naphtha cracker players believed stories of a strong post-Lunar New Year Chinese rebound, and/or stronger butadiene and the prospect of stronger propylene and PP on resumed auto production in Thailand persuaded them to buy more naphtha.

Whatever the reasons, the extra naphtha cannot sit in tanks forever and so, if our analyst is correct, Asian cracker operating rates might be set to increase.

On paper, we noted last Thursday that the Middle East, despite market comments to the contrary, was not undergoing a heavy turnaround season.

Now we understand that a high number of outages in January and February helped support pricing, as this article from another of my ICIS colleagues, Ong Sheau Ling, illustrates. These technical problems have come to an end, removing that support.

Plus, as we again said last week, the start-up the ChevronPhillips joint venture high-density PE (HDPE) and polypropylene (PP) plants in Saudi Arabia are imminent. Distributors and end-users are also aware that around 1m tonnes/year of PE from the new ExxonMobil complex in Singapore is scheduled to hit the market at some point this year.

As supply lengthens, the China market is still showing no signs of the strong post-Lunar New Year rebound that so many people had predicted. ICIS assessed pricing as flat last Friday, other than low-density PE (LDPE) which declined by $20/tonne. Labour and credit shortages, and concerns over the global economy, continued to affect sentiment.

Meanwhile, margins came under further pressure, according to the ICIS pricing Weekly PE Margin Report. Integrated HDPE margins for the typical Asian naphtha cracker in our model fell by $73/tonne for the week ending 17 February, on flat HDPE pricing and a rise in naphtha costs.

Eventually, perhaps, the European PE producer might be proved right once the Asian cracker operators have used-up their extra naphtha supplies. They might then make deep reductions in operating rates to bring the market into better balance.

But even during Q4 last year, when markets were exceptionally bad, Northeast Asian rates were only lowered rates to around 85 percent compared to 70-75 percent in Europe.

The Northeast Asians have a long history of chasing market share rather than keeping a tight lid on production during periods of market weakness – and in China, producers there tend to run for social as much as economic reasons. We have picked up no indications that this has changed.

The $64,000 question right now is whether European and US prices might be dragged down by Asia, rather than the other way around.

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