Asian LDPE Margins Reach New Low


               LDPE margins in 2012     


By John Richardson

NORTHEAST Asian integrated low-density polyethylene (LDPE) margins keep plunging new depths.

The margins were at their most negative since ICIS records began in 2000, according to the ICIS Asian PE Margin Report for the week ending 10 August.

And the report for the week ending 17 August said that they had fallen even further – by $17/tonne.

Integrated high-density PE (HDPE) margins were also down, by $16/tonne – their lowest since early March of this year.

“The declines were on a 1.3 percent rise in naphtha feedstock costs as naphtha prices increased by $13/tonne, which outweighed a $15/tonne rise in PE prices,” said the 17 August report.

LDPE has been under pressure from increased low-cost shipments to China from Iran. In January-June this year, Iran saw its exports surge by 40 percent compared with the same period in 2011, according to Global Trade Information Services (GTIS).

HDPE exports from Iran to China were also up – by 55 percent – when the same two six months periods are again compared using GTIS data.

Iran is reportedly being forced to produce more PE because tougher sanctions have made it much-harder for it to ship ethylene.

And, of course, with Iran facing an overall tougher sanctions regime, making it difficult for it sell just about anything to many countries in the world, Chinese PE buyers have the upper hand.

LDPE is also being affected by new capacity.

Qatar Petrochemical Co (QAPCO) brought its 300,000 tonne/year plant on-stream in June.

Saudi Kayan Petrochemical Co’s 300,000 tonne/year LDPE plant is scheduled to start-up in Saudi Arabia in Q3, but some reports suggest that commissioning might be delayed until the fourth quarter.

But maybe we are overcomplicating things.

The overall story seems very simple. LDPE is merely the canary in the coalmine because of specific issues that have made its margin depletion the worst for Northeast Asia, which, because it is naphtha-based, is always going to suffer the most in a weak market.

What matters most for the polymer is that overall PE apparent demand in China fell by 1 percent in H1 2011 over the first half last year, and by 3 percent over H1 2010.

This compares with a 53 percent demand increase in 2008-2010 on a huge economic stimulus package by the Chinese government.

This brought demand forward as an army of new traders entered synthetic resins trading in general. They hoarded speculative volumes on the hope that the 53 percent growth in 2008-2010 would be sustained.

But it wasn’t. Growth could never, realistically, be sustained at such a level.

Demand declined in 2011 as government stimulus was withdrawn.

And in an important report released by HSBC in June, the bank underlined what the blog has been hearing since early 2011 when it wrote: “Polyethylene, polypropylene (PP), polyvinyl chloride (PVC), polyethylene terephthate (PET) and acrylontrile butadiene styrene (ABS) demand growth has averaged just 2.7 percent since the first quarter of last year, compared with a 9.1 percent increase in GDP.”

The reason is that inventories from polymers down to finished goods are still at high levels following the 2008-2010 increase in speculation.

Demand has also taken a big hit from the economic slowdown in China, the severity of which has taken many people by surprise.

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