Weak East Med PE, PP demand dampens hopes of price hikes

SINGAPORE (ICIS)–Spot polyolefin demand in the East Mediterranean (East Med) markets has remained mostly weak, dampening any possibility of prices rising in April.

Fruit market at Marret Numan city in Syria (Photo by Mohammed Badra/EPA-EFE/REX/Shutterstock)

The macroeconomic landscape in the region remains weak, largely due to geopolitical wars/tensions in Iraq and Syria, which are major markets for plastic finished goods in the region.

Regional resins demand remained poor and is not expected to improve much despite the seasonal uptick ahead of the Muslim fasting month of Ramadan, which begins in early May.

Plastics processors typically stock up on PE, PP inventories ahead of Ramadan to cater to an expected increase in demand for food packaging.

“The bulk of demand for polyethylene (PE) and polypropylene (PP) demand in Jordan is to cater to the production of finished goods that are exported to Iraq, Israel and Syria, which has been struggling in the last few years,” a Jordan-based trader said.

The Jordanian government’s decision to lower the minimum taxable wage, and to raise tax rates on consumer goods since 2018 continues to affect consumer spending in the country.

Since early 2018, the government in Jordan has raised taxes on several food and consumer items by unifying rates of sales tax at 16 percent and also removed exemptions on many basic goods.

This move – one of the mandated conditions of a three-year economic program by the International Monetary Fund (IMF), to generate more state revenues to gradually bring down public debt – has had severe repercussions on trade in the region.

“It [higher taxes] has come at a time when economic growth is flat amid regional turmoil and businesses are struggling to cope with shrinking consumer demand,” a regional PE and PP importer said.

“On one hand, Jordan is not a very big economy with big manufacturing or services sectors, so taxation forms a big chunk of government revenue. It has, however, resulted in a very challenging business environment,” the importer said.

This was in stark contrast with market conditions a few years ago, when roads were full of traffic and footfalls in shops were high in preparation for Ramadan and the Eid ul-Fitr holidays.

Eid ul-Fitr marks the end of the month-long Ramadan.

“The streets today are empty and people are just not keen to buy anymore,” the Jordanian trader said.

Operating rates at East Med PE and PP processing units are lower, on account of weaker sales of finished goods, according to market sources.

“Demand for HDPE [high density PE] moulding for use in beverage containers, or PP film that goes into T-shirt packaging is definitely poor, and processors catering to these segments are operating at about half of the designed capacities,” the Jordanian trader said.

Demand for PP injection moulded products or thin walled containers are doing relatively better, owing to the specialized nature of the applications, but the same cannot be said for the more-widely consumed commodity grades, the trader said.

Offers for April-lifting PE and PP cargoes are set to make their way into the market in end-March.

Sellers remain optimistic of achieving hikes on the back of limited supply, and in anticipation of stronger pre-Ramadan kicking in.

Buyers’ response to this remains uncertain as they continue to struggle with sluggish sales of finished goods and squeezed margins.

On 22 March, ICIS assessed HDPE film prices in the East Med market at $1,040-1,130/tonne CFR East Med, stable from the week before.

PP raffia/injection prices were also flat week on week at $1,100-1,180/tonne CFR East Med, ICIS data showed.

Saudi Arabia started operations early this week of a sea line with Iraq’s Um Kasr port to boost inter-trade over the next period, according to industry reports.

This is likely to renew the movement of PE and PP, and several other petrochemicals – of which Saudi Arabia is a major exporter.

Egypt, Jordan and Iraq also came together at a three-way summit held in Cairo on 24 March, and discussed boosting economic and investment cooperation as means to restore stability in the region.

“All these efforts are likely to better trade for sure, but will yield result only over a period of time so we have little choice but to wait for that to happen,” the Jordan-based trader said.

Focus by Veena Pathare