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Updated to Q2 2019
Polyethylene (PE) supply in Q2 was ample. Some imported grades were not as available as many sources had expected, but nevertheless there was enough availability of all grades. Lengthy supply had no impact on pricing as crude and naphtha were strong, although spot prices began to erode as upstream naphtha fell. By the end of the quarter, new imported quantities – particularly from the US – were being offered for July delivery.
Demand for contracted volumes was sustained in Q2, but spot demand began to slip as it became clear than upstream prices were falling and June distribution and spot demand had been very low. This was put down to the poorer economies in Europe, expectations of lower prices to come and general caution caused by geopolitical concerns. Smaller buyers tended to cut back on volumes more than larger ones.
US polyethylene (PE) supply held mostly steady during the second quarter at elevated levels following the significant rise in capacity seen during 2017. Sasol raised operating rates at its new 470,000 tonne/year LLDPE plant, while other anticipated new plants are likely to come online in the second half of the year. Inventory levels came down from their first quarter highs, but remained well above last year’s figures.
Domestic PE demand was healthy, boosted by higher demand for plastic packaging from online retailers. Overseas demand grew at a slower rate than expected, although US sellers achieved significant increases in their export volumes by taking advantage of the region’s low-cost position relative to other regions. Trade tensions with China blunted export demand into the Chinese market, but sellers were able to push additional volumes to other markets such as Europe, southeast Asia and Latin America.
Q2 supply in China was stable as the new Jiutai Energy plant ran at a relatively low operating rate in May. China import volumes fell as it became a less lucrative market due to lower prices. Regional southeast Asian supply was healthier as ethylene prices weakened substantially in the later part of Q2, making it more economical for PE producers to ramp up production. Import supply from the Middle East, India and US remained healthy.
Q2 demand across Asia was largely subdued amid escalating US-China trade tension. Most converters kept their inventories lean and reduced their monthly purchase volume whenever possible on the back of slow consumption for finished goods. Depreciation of major Asian currencies against the US dollar caused imports to be less attractive against local resin prices, which curbed import demand further. Demand pick up in major southeast Asian markets was limited ahead of Eid-ul Fitr holiday in June.
Polyethylene availability fluctuated in the second quarter. Middle East production issues limited low density polyethylene volumes at the beginning of Q2. The ramping up of trade tariffs between the US and Chins eased supply concerns. Volume origin diversified as sellers were forced to find new markets for their material. Weak pricing across Africa meant that other regions offered better netbacks but supply levels were so high that players did not struggle to obtain their requirements.
Demand prior to Ramadan and Eid al-Fitr was healthy. As players stocked up for the following slow period, when Middle East producers cut production and availability falls. During May, as Ramadan began, demand dropped off and is yet to recover. This is traditionally a slow season, as the rainy season begins in sub- Saharan countries but this was exacerbated by the collapse of Chinese PE prices. African buyers held out for similar in their region.
Production problems in the Middle East limited availability in Turkey. High density polyethylene (HDPE) production was particularly disturbed by flooding in Iran, which is a major provider of HDPE. Low density polyethylene supply then also struggled later in the quarter due to production outages in the Middle East. The faltering value of the Turkish lira against the dollar, the re-running of the Istanbul mayoral election and Ramadan and Eid al-Fitr restricted demand, easing supply pressure.
It has been difficult for the Turkish PE market to gain any momentum prior to summer, due to frequent disturbances. Moderate buying interest was curtailed early in the quarter by the municipal election and just prior to that, a slide in the value of the lira against the dollar. The collapse of Asian prices saw little demand there dissipated as buyers held off for lower prices.
Middle Eastern PE supply emerged tight in early Q2 following scheduled maintenance activities at one producer facility, with supply levels improving later following a build-up of inventories post-maintenance. Although US-origin PE did not make an appearance within the GCC, supply levels stayed ample through May and June due to US cargoes emerging in other markets, displacing Middle Eastern product. The market of Jordan saw US product offered at competitive levels to the Red Sea ports.
Middle Eastern demand emerged stable early in the quarter but tapered off from May onwards with the onset of Ramadan, a traditionally slow period for most polymer purchases. Downstream demand also shrunk, with shorter working hours at regional PE processing units. Demand stayed weak in H1 June owing to the Eid ul-Fitr holiday. Significant uncertainty in the wake of US-China trade war that contributed to a lack of clear market direction additionally capped uptake through June.
Polyethylene supply declined in Q2 because but only because of ethylene problems in Mexico that resulted in diminished Pemex production. The Asahi plant has been idled as Pemex opted for concentrating HDPE production on the Mitsui plant. Other plants in Mexico have run units intermittently because of ethylene shortages. The Venezuelan PE plants worked at very low operating rates in Q2, estimated at less than 25%.PE production has been normal in most other countries of Latin America.
During Q2, demand dropped in several countries because a strong dollar has brought currency depreciations in several countries of Latin America. Argentina has been the most affected country in Latin America, and Brazil has shown the same symptoms, although on a smaller scale. The currency decline also affected Chile and Colombia, although the impact in those countries was moderate. Q2 demand has been softer than expected in Mexico, and prices have declined because of oversupply.
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Price alerts and market updates: Shifts in prices, latest news on the PE market developments and changes to regulations and demand trends
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Historical prices: Download and/or chart pricing from as far back as the start of ICIS coverage
Weekly market outlook: Overview and outlook for the overall PE market, including a brief commentary on the other regional markets
Supply and demand: Analysis of domestic and international supply and demand
Regional coverage: Africa, Asia-Pacific, China, CIS, Europe, Latin America, Middle East/South Asia, Turkey, US
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