OUTLOOK '18: Mideast PE awaits economic, geo-political clarity in 2018

Author: Veena Pathare


SINGAPORE (ICIS)--Polyethylene (PE) markets in the Middle East wait for improved clarity on the geo-political and economic situation within 2018 onwards, as this would have a direct impact on the polymer’s demand and prices.

The region remains in a standoff against Qatar going into 2018.

With Qatar positioned as a major regional PE producer, a clearer outcome on the diplomatic crisis between Qatar and other countries within the Gulf Cooperation Council (GCC) is expected to impact trade flows and prices within the GCC.

The Qatar diplomatic crisis began in June 2017, when other GCC members cut off diplomatic relations with Qatar, over the latter’s alleged support to terrorism.

Following this, major ports of call within the GCC were no longer available for ships moving in and out of Qatar, leading the suppliers there to move larger volumes to Asia.

Trade of Qatar-origin PE within the GCC was also banned, and banks stopped executing payments for transactions.

Qatar also began to ship out PE cargoes through Oman to work around the restrictions on access to ports of call in the UAE.

This not only added to the shipping costs, but also increased shipping times and caused delays affecting the attractiveness of Qatar-origin PE in key global markets.

Asia continues to remain key market of focus for Qatari producers in the wake of the diplomatic crisis. A favourable resolution reached may see the resumption of GCC’s trade with Qatar.

This seems unlikely to some market participants, who think that the conflict may play out for a longer period.

“It has been more than 6 months, and neither side has budged, leading us to believe that the failure to end the dispute could continue for long,” a GCC-based importer said.

This challenging political climate has hampered growth within the GCC, according to industry sources within the region.

“The economic consequences of the political conflict with Qatar has already hampered economic performance within the GCC, and markets may slow down further if the standoff continues,” a UAE-based trader said.

Separately, market players also wait for further clarity on the implementation of the value-added tax (VAT) proposed to be imposed in Saudi Arabia and UAE 1 January onwards.

Market players generally expect limited impact on GCC’s PE trade, since much of the polymer consumed within the GCC is also produced within the region and exports are expected to be exempt from VAT payments.

However, companies, especially PE processors, are likely to take time to adjust to the new workflows and processes involved under the new tax structure, which may slow trade in the near-term.

One of the major factors that is likely to have an impact on PE prices globally from 2018 is the start of commercial operations at PE facilities in the US.

Large volumes of shale-based PE is expected to make its way into Asia and other regions, displacing Middle Eastern volumes.

A significant impact on global PE prices is expected to be seen mid-2018 onwards, once commercial operations are established.

Market participants expect PE prices across the world to come off substantially from the current levels, as US producers compete for market shares.

“We should not be surprised if PE prices come to three-digit values, given the huge influx from the US,” a regional trader said.

Outlook article by Veena Pathare