SINGAPORE (ICIS)--Spot prices of dutiable polypropylene (PP) flat yarn prices in southeast Asia have exceeded those of linear low density polyethylene (LLDPE) prices for the first time in three years.
Dutiable PP flat yarn prices are higher than LLDPE film prices by around $15/tonne at an average of $1,180/tonne CFR (cost & freight) SE (southeast) Asia based on ICIS’ price assessments on 12 January.
The average dutiable spot LLDPE film prices were at $1,165/tonne CFR SE Asia.
Typically, LLDPE film cargoes are priced higher than PP flat yarn by around $100/tonne on average, according to ICIS data over the past two years.
In early November 2017, several Middle Eastern and Saudi producers revised down LLDPE film offers due to mounting supply pressure, with some suppliers cutting their prices by as much as $40/tonne. Weak downstream demand for finished products further weighed on buying appetite for LLDPE film grade.
Converters in the region were well-stocked on the polymer resins, and hence, were less inclined to procure fresh cargoes at the time - to keep stocks lean ahead of the year-end.
During the same period, spot PP flat yarn prices were also under pressure due to lacklustre buying in the finished goods sector.
However, PP prices were slower to fall amid tight availability of dutiable cargoes from the Middle East. Price erosions were limited by a more balanced overall demand-supply condition.
Subsequently, strong crude and feedstock prices fuelled the increase in the prices of the two polyolefin grades since late November 2017. PP lodged stronger gains, backed by tight supply and robust China market, rising by $40/tonne to date since 24 November 2017.
In comparison, LLDPE film had a more modest increase amid ample supply and weak demand, up only $20 since 24 November 2017.
The gains in the southeast Asian LLDPE market also lagged behind those of spot dutiable high density polyethylene (HDPE) film, which surged by $80/tonne since 24 November 2017 to $1,300/tonne CFR SE Asia on 12 January 2018 owing to tight supply.
Market sentiment turned bullish as strong upstream feedstock cost combined with tight supply provides support for HDPE film prices with some buyers seeking cargoes to cover their production needs in anticipation of further supply tightness.
Diverging market fundamentals have contributed to PP resin prices overtaking those of LLDPE film's in recent weeks.
PP flat yarn prices in southeast Asia were supported by a bullish Chinese market, where import prices rose sharply on the back of surging domestic and futures prices.
A relatively tight supply of import cargoes from the Middle East and an absence of any significant volumes of deep-sea cargoes further supported import PP prices.
In addition, pockets of spot demand opened up in Japan, as Japan Polypropylene Corp (JPP) unexpectedly shut its 300,000 tonnes/year plant in September 2017.
Japan is not typically a major importer of PP resins, being largely self-sufficient. However, with JPP’s plant expected to remain shut until February, some Japanese buyers had little option but to turn to the import market to secure some spot volumes.
As such, several producers diverted available cargoes to the Japanese market instead, where margins were more attractive, further limiting availability in the rest of the Asian spot market.
On the other hand, suppliers of LLDPE film struggled to increase prices substantially as most buyers resisted much higher prices amid lacklustre demand in key China market and other Asian regions.
Volatile Chinese LLDPE futures prices adds to the market uncertainty, curbing buying interest for longer-shipment import cargoes.
Some market players expect overall demand for plastic resins to improve as China starts to implement the ban on imports of plastic wastes this year.
On a month-on-month basis, China’s PE imports increased by 9.27% in November to 1.07m tonnes, according to official data.
However, other players expressed concerns that increased PE exports from India and the US might eclipse the increase in demand.
In the longer run, overall PE prices in Asia may face downward pressure, as buyers will have more supply options when fresh volumes from US projects are made available in the region.
Supply of PP resins is expected to grow at a more modest rate, in comparison to that of PE, owing to delays of several coal-based start-ups in China.
In November 2017, China’s intake of PP was up by 22.8% at 438,042 tonnes according to China customs.
Previous concerns about China’s strong PP expansion have been allayed by the country’s ongoing war on pollution, which could result in project delays.
Focus article by Leanne Tan
Additional reporting by Felita Widjaja
Picture: Phu My Port in Ho Chi Minh, Vietnam (Photographer: Richard Cummins/robertharding/REX/Shutterstock)