Polyethylene (PE) markets in southeast and south Asia will be on the radar of US producers as they prepare to export greater volumes in 2019.
Speaking to ICIS at the sidelines of the Gulf Petrochemicals and Chemicals Association (GPCA) Forum in Dubai, sources said that US producers would have to export to Asian markets outside of China, given that the latter was no longer viable owing to the 25% tariffs imposed on US-origin PE. “US producers have no choice but to target any and all markets, since it will be difficult to make up for the volumes that they would have otherwise exported to China,” a source said.
Besides Asia, Turkey and Europe are going to be markets poised to see an influx of US-origin material, although it remains to be seen how the dynamics in Europe would play out.
A number of PE facilities coming up in the US also belong to companies that are also established PE producers in Europe, so targeting Europe for exports would mean compromising on existing market shares, industry sources said.
“We are likely to see a global re-alignment of tradeflows, with Europe and Middle East targeting China for exports, and US opting to focus on exporting to global markets traditionally dominated by the Middle East,” a major global trader said.
Middle Eastern sellers are also likely to see greater netbacks in selling to China, following the absence of US material, limiting the attractiveness of other markets, sources added.
GCC MARKETS THREATENED
Rising shale-based PE supply from the US threatens markets that were traditionally dominated by Gulf Cooperation Council (GCC)-based players.
Polymers exports from the GCC have been the fastest growing segment and the highest contributor to chemicals export revenue, and grew by 12% between 2007 and 2017, according to the GPCA. In 2017 alone, polymers export increased by 4%, reaching 23m tonnes.
Year 2019, however, presents a different picture along with a new set of strategic and regulatory challenges faced in major markets. China is poised to gain further importance as a major PE market for GCC-based producers in the wake of the 25% tariffs on US PE imports levied. But this is not without its own challenges: “That China will be a key focus market for producers like us is easier said than done,” said a major GCC PE and PP producer.
Currency fluctuations and price uncertainties have shrunk demand across major Asian markets, impacting GCC’s polymer exports. GCC producers are also faced with tighter regulations as a result of growing environmental concern about plastics.
India has seen PE and PP demand contract as a result of the ban on disposable single-use plastic goods. India has also turned into a net PE exporter following the startup of new domestic facilities, further curbing market shares for GCC sellers.
A sluggish Indian macroeconomic environment and weaker domestic market has prompted roducers to divert their attention to Asian export markets, resulting in greater price competition.
SHIFTING TRADE FLOWS
Changing PE trade flows are a major concern. There is a level of uncertainty that is increasing nerves for many players: “PE will be a different ball game next year” said a supplier. “There will be a vacuum in China. [It] will be filled in by the Middle East but we don’t see that yet,” it added.
While there are going to be issues ahead for suppliers, buyers are likely to benefit from a wide variety of available offers.
“We see 2019 as challenging year for suppliers,” a trader said. “[They are] desperate to hold market share.”
US production capacity expansions and the US/China trade war have shaken up established supply channels this year. Both Africa and Turkey have seen prices slide as cheap US material becomes a regular factor in each market.
Additional reporting by Ben Lake