OUTLOOK’18: SE Asia PE new supply to press prices amid slow demand

SINGAPORE (ICIS)–Polyethylene (PE) market players in southeast Asia expect prices to soften in 2018 as new supply from the US and India will add to buyers options while demand is also unlikely to see any major growth.

The start up of new PE plants, especially in the US, will expand import cargo availability and create more supply sources for buyers to choose from, suppressing prices as a result, industry sources said.

A large share of the new linear low density polyethylene (LLDPE) plants in the US will produce higher value products such as metallocene LLDPE (mLLDPE) while other capacity expansion include low density polyethylene (LDPE) and high density polyethylene (HDPE) grades.

Although there are scant offers for US-origin cargoes at the moment, southeast Asian players anticipate significant import volumes for commodity PE grades from another net-export country; India.

India’s Reliance Industries had started to export their LLDPE in November 2017 amid on-spec production at its new 550,000 tonne/year LLDPE/HDPE swing plant in Jamnagar.

Offers for India-origin LLDPE December shipment cargoes at $1,130-1,150/tonne CFR SEA were around $20-30/tonne lower than other offers available from regular Saudi and Middle East suppliers.

In southeast Asia, there is limited additional PE capacity in 2018. Only PTT Global Chemical (PTTGC) new 400,000 tonne/year LLDPE/mLLDPE unit in Thailand is expected to start up by December 2017.

On the demand side, buying attitude of most southeast Asian importers had shifted to a cautious mode, particularly in the recent months, as news of completion of new PE plants in India and the US was announced.

Industry sources reckoned that bearish market sentiment might continue into the first quarter of 2018 amid looming additional supply which will curb demand for imports.

China remains the perennial number one PE importer in the world due to its sizeable PE deficit, which means that China needs to import around 10m tonnes of PE in 2018, according to ICIS data.

Therefore it is unlikely that China will export more PE volumes despite local PE capacity expansion in the long run.

India and the US which have large new export volumes are expected to also turn to other Asian markets, apart from the main target China market to sell their surplus cargoes as they intend to expand their export market reach.

Typically, Vietnam will be the main market within southeast Asia that producers will target after China due to its open market policy.

“All PE import cargoes into Vietnam are duty free which makes it a level-playing ground for overseas producers,” said a local trader.

Some other southeast Asian countries impose between 5-15% of import duty for non-ASEAN (Association of Southeast Asian Nations) PE cargoes.

Most traders expect Vietnam to be significantly affected by the changes in the market which will have a long-term effect on the supply-demand balance as well as prices in the region.

As competition in Vietnam intensifies with new supply sources becoming more available in big volumes, prices might be significantly lower than other southeast Asian regions, lowering producers’ netbacks.

Therefore, some suppliers had started to explore the other largely untapped emerging CLMV markets besides Vietnam, namely Cambodia, Laos and Myanmar as competition is set to intensify in 2018.

“We can sell our cargoes at around $30-40/tonne higher to Myanmar as there are not many suppliers selling there at the moment,” said a regional trader.

China’s decision to ban import of plastic waste from January 2018 had triggered a price surge and speculative demand for virgin PE resins back in August, pulling up prices in southeast Asia along the way.

“If China demand is strong and buyers are willing to pay higher prices, most suppliers will sell more to China because freight cost is much cheaper than selling to southeast Asia,” said a Saudi producer.

The surge in demand for HDPE pipe amid growth in the construction sector in Asia had given more incentive for HDPE producers to switch their production to pipe instead of film grade.

Thus, average HDPE film prices were pushed up by $245/tonne and $180/tonne to $1,300/tonne CFR China and $1,255/tonne CFR SEA in November and December respectively on the back of tighter supply as compared to prices in July 2017.

However, most market players reckoned that current firm prices for certain PE grades might not be sustainable should supply tightness ease in the near term amid increased cargo availability.

Some industry sources are also paying close attention to feedstock ethylene price movements which affects the selling behaviour of most PE producers in the region.

Those with integrated PE plants would typically switch to selling their ethylene when prices are high for better netback while those with non-integrated PE plants would need to reduce their PE production as the cost of purchasing ethylene to produce PE would be too high for them to make any profit.

As a result, PE supply would eventually be reduced which might support prices in the near term whenever the price spread between ethylene and PE narrowed.

Some suppliers had urged buyers to keep stock buffers and anticipate seasonal peaks in demand and evaluating implications from short-term price movements.

However, most converters in southeast Asia are not keen to stock up on their inventory and are opting to rely more on prompt shipment imports for their immediate requirements till clearer market direction emerges in early 2018.

Outlook article by Felita Widjaja