Southeast Asia’s polypropylene (PP) market may come under pressure in the second half of the year on account of lengthening regional supply and weak downstream demand.
Spot prices have been on the rise, buoyed by bullish sentiment in the Chinese market and firm upstream feedstock costs.
Margins for PP makers have been lower on average compared with levels in the previous year.
In Vietnam, Nghi Son Refinery & Petrochemicals is scheduled to start up its 400,000 tonne/year PP production unit in the third quarter. The project was initially scheduled to start up in the first quarter of 2018.
While domestic demand will continue to outstrip local production, the country’s reliance on imports may be diminished when the new plant starts up.
Converters in the country have been opting to keep inventories lean in the short term amid expectations that prices may eventually weaken when more domestic supply becomes available.
“Buyers don’t want to buy too much import cargoes now, not just because prices are high, but also because there will be more locally produced materials very soon,” a Vietnamese trader said.
In Malaysia, Lotte Chemical Titan is expected to start commercial production at its expanded PP facility in Pasir Gudang in June or July. The plant’s capacity will be raised by 200,000 tonnes/year from 400,000 tonnes/year.
Import availabilities from South Korea are expected to lengthen in the medium-to-long term, with S-Oil expected to complete an olefin downstream complex at its Onsan refinery in Ulsan, which will include a 405,000 tonne/year PP capacity.
On the demand front, weakness is likely to persist in the second half, with converters and end-users likely to continue buying spot cargoes on a hand-to-mouth basis.
Indonesia’s demand, in particular, has been below expectations since the start of 2018, and this is likely to continue in the second half of the year, according to market players. Some players said import demand for dutiable cargoes may increase in the second half of the year, as this is typically when the government issues duty exemption facilities.
The duty exemption facilities are issued on a yearly basis, which enable converters to import some PP volumes without extra cost.
In Malaysia, the removal of the 6% goods and services tax (GST) has had no immediate impact on the PP market, though there are some expectations the move could boost demand in the consumer market further down the road.
In Vietnam, demand for PP flat yarn has entered a seasonal lull from May to early July, and will not pick up until August, when the summer harvest begins.
PP is widely used in the manufacture of woven sacks (for rice sacks), flexible packaging, carpets, household appliances and automotive parts.
Spot PP prices in southeast Asia have been on an uptrend for most of the first half.
The PP market begun the year on a bullish note, with spot prices surging by almost 10% over the course of two months; with all-origins PP flat yarn prices peaking at $1,295/tonne CFR (cost and freight) southeast (SE) Asia on 2 March.
Healthy demand in China helped to provide support to spot prices in southeast Asia in the first quarter, with a tight global spot supply leading to further price escalations.
Some suppliers pulled back from the southeast Asian spot market to capitalise on better netbacks in other countries, including Japan and Pakistan, leading to further curtailed spot availability in southeast Asia.
The market rally started to lose steam in early March, amid subdued demand and a build-up of domestic inventories in China after the Lunar New Year holidays.
The bearish sentiment soon spilled over into southeast Asia, with Chinese suppliers pushing some volumes into southeast Asia amid an open arbitrage window.
Vietnam remains the market of choice for Chinese exporters, and PP import prices in the country plummeted as the result of the lengthened spot availability.
However, the bearish run was short-lived, and prices soon bottomed out in early April.
Bullish momentum in the upstream crude and naphtha markets propelled spot prices of polymers higher.
Despite lacklustre downstream demand, price hikes in April and May were commonplace, as producers sought higher asking prices in view of narrower margins.