Mideast polyolefins demand to firm in Q4, crude adds uncertainty

SINGAPORE (ICIS)–Polyolefin demand in the Middle East has been mixed since early this year and is likely to see limited activity going into Q3, though major uptick is possible in late Q3 or early Q4 onwards.

Currently polyolefins demand in the region remains seasonally weak during teh Muslim fasting month of Ramadan in mid-May.

The upcoming Eid ul-Fitr holidays in mid-June is expected to keep demand depressed until the end of the month, market players said.

Demand for both polyethylene (PE) and polypropylene (PP) is unlikely to see any major uptick in the hot summer of July and August.

“Summer holidays and high daytime temperatures seen in the peak summer months of July and August are likely to cap PE and PP purchasing as many people travel outside of the GCC for a break,” a regional polymer processor said.

Moreover, PE trade between the Gulf Cooperation Council (GCC)’s and Qatar is unlikely to see any improvement as the political and diplomatic standoff continues between the two.

The standoff began in June last year, when other GCC members cut off diplomatic relations with Qatar, over alleged support to terrorism.

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

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.

Although market participants in the GCC are hopeful of a resolution of the crisis, they expect the dispute to continue beyond 2018, preventing any change in the existing trade flows for PE within this year.

Market participants in the GCC are also uncertain that the high density PE (HDPE) film and blow moulding prices will sustain at the current high levels, as demand for pipes in China is showing signs of a slowdown.

Producers in the GCC had previously switched to maximizing production of HDPE pipes, driven by China’s robust demand to support the movement from coal to gas as the source of energy.

The ability to realise significantly higher netbacks in pipes also supported suppliers’ attempts to increase pipe production.

A delay in the pickup of pipes for coal-to-gas piping projects in China brought on by delays in government funding has resulted in a slowdown in pipe demand in China since May.

According to market players, if Chinese pipe demand continues to remain sluggish, suppliers would be pushed to switch to producing other HDPE grades, thus improving their availability and bringing down prices.

PE and PP demand in the East Med region remains weak because of the political instability in Iraq and Syria, hampering finished goods sales, thereby affecting resin demand.

Uptake in markets such as Jordan also remains poor, as the bulk of resin imported is used to produce finished goods that are then exported to Iraq.

Although prices in the East Med typically follow the trend in Asia and other markets such as the GCC, weak downstream demand continues to weigh on buying appetite of regional importers, capping their ability to absorb higher polymer prices, market sources said.

“It is difficult to expect any improvement in demand in the East Med until the political landscape in Iraq and Syria improves,” a Jordan-based PE/PP importer said.

The recent volatility in crude oil prices is also likely to influence PE and PP volume sales for the rest of the year, as processors would assume a cautious approach to buying while seeking a greater clarity on the near-term trend in prices.

“Processors are going to stick to modest purchase volumes while waiting for a clearer price direction,  that would hamper PE/PP demand, if the volatility in crude oil prices continues to persist,” a GCC-based trader said.

Focus article by Veena Pathare