OUTLOOK ’18: Mideast PP Q1 2018 outlook firm on tight supply, demand

SINGAPORE (ICIS)–Middle East spot polypropylene (PP) prices in the Middle East are likely to be firm in the first quarter of 2018, on the back of tight supply and robust demand early in the year.

Upcoming maintenance turnarounds across facilities in the Middle East as well as Asia, coupled with stronger demand to replenish stocks after the year-end holidays is expected to lend support to prices across markets in the first quarter of the year.

Some suppliers expect firmer prices to see an uptrend well into the second quarter, propped by strong demand and a lack of inventories following robust sales in early months.

“We expect PP prices to be mostly on a rise until May, after which prices may cool off”, a Gulf Cooperation Council (GCC)-based supplier source said.

Market participants in the GCC expect demand in the region to improve early in the year, propped by a need to replenish stocks in the new financial year.

These 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 PP 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 regional 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.

GCC’s PP demand is expected to firm up in April and May ahead of the fasting month of Ramadan slated to begin in mid-May. A need to replenish stocks ahead of the Eid ul-Fitr festival in mid-June is likely to bring buyers to the fore.

Demand would then enter a lull during the Eid holiday followed by the summer holidays in July and August, before recovering late in the year, on low inventories.

Separately, market players in the East Mediterranean (East Med) region are hoping for a recovery in market conditions 2018 onwards, spurred by the stabilisation of political and economic conditions in Iraq and Syria.

“Rehabilitation efforts in Syria and Iraq after the wars there is expected to drive construction and building activity, supporting greater polymer demand,” a Jordan-based importer said.

Jordan that functions as a hub for the manufacture of finished goods in the East Med is set to see a boost in exports to Iraq and Syria next year, following increased demand for finished products from these countries.

Market players do not expect any significant change to the supply conditions following limited expansions in the recent years.

Spot supply has generally been not very long, since early 2017, and is expected to remain largely similar going into 2018.

PP supply was hit early this year by a fire that broke out at the Abu Dhabi National Oil Company’s (ADNOC) refinery in Ruwais on 11 January, affecting Borouge’s PP production.

Overbookings among other suppliers coupled with a shortage in feedstock propylene in some GCC countries also lent support to firmer prices through the first quarter of 2017.

Prices came off late Q1 onwards following improved spot June availability, and a slowdown in demand during the month of Ramadan and Eid holidays but rebounded in the second half following robust demand from China.

Chinese demand emerged stronger after the National day holidays in October buoyed by low stocks. Furthermore, planned and unplanned shutdowns undertaken at Chinese production facilities for environmental emission checks also supported demand for imports.

China looks to enforce a ban on the import of waste plastics 2018 onwards. The possible implementation of a blanket ban is likely to support greater demand for virgin resin in 2018, supporting prices, according to industry sources.

2018 is also set to be a year where China is planning to intensify its efforts to improve air quality. Hence, it is likely to witness shutdowns at several of its downstream polymer processing units where emission standards do not meet the specifications set.

This is also likely to influence demand for PP imports in China, and may have an effect on markets worldwide.

Outlook article by Veena Pathare