Mideast petrochemical logistics woes to worsen on Suez Canal blockage

Author: Felicia Loo

2021/03/26

SINGAPORE (ICIS)--Logistical issues hounding petrochemical-rich Middle East may worsen amid the Suez Canal blockage, further limiting its ability to ship cargoes out of the region.

The global polymers market has been grappling with a shortage in availability of containers, resulting in a steep hike in freight costs since second half of last year.

This blockage of the Suez Canal - a key waterway for global trade - may further hamper container availability for polymers movement.

"International trade flows were already in trouble so this is a further issue affecting polyethylene (PE) trade flows, adding further delays," said ICIS market analyst Lorenzo Meazza.

Asia, the biggest market for Middle Eastern PE and polypropylene (PP), would face heightened logistical issues as lack of vessel availability is already causing delays in shipments to China.

Europe, a market that has already been seeing a steep surge in PE and PP prices recently due to non-availability of sufficient material is directly impacted by this, as a result of shipment delays.

Delays are poised to emerge on cargo movements from the Middle East to the Americas as well, as all shipments will have to be re-routed via the Cape of Good Hope in South Africa, substantially increasing delivery times.

Tight global PE supply persisted following production disruptions in both the US and Europe, and aggravated by ongoing maintenance at Middle East plants.

A scheduled maintenance is underway at Saudi Kayan, resulting in an estimated production loss of close to 29,000 tonnes of low density PE (LDPE) and over 38,000 tonnes of high density PE (HDPE). The shutdown is due for completion sometime in mid-April.

The Suez Canal closure is now on its fourth day, with some petrochemical shipments between Asia and Europe facing some delays.

"Suez is a key route for material moving from Asia to Europe and if the blockage will not be removed soon, some shipping firms may be forced to re-route vessels around the southern tip of Africa, causing further delays with possible impacts on PE supply in Europe," Meazza opined.

Compounding the situation is the possibility of further spikes in already-high shipping rates as the alternative route via Africa takes longer, market players said.

Delays in shipments caused by the blockage could aggravate the supply crunch in some markets.

As things stand, international trade flows were already made difficult because of the current strong increases in freight rates and the lack of containers, according to Meazza.

"But this time this is happening in a context of improving global PE demand so this lack of supply is strongly felt in the market, with implications on PE prices," he added.

"Any further restriction of PE supply may play an important role, so Ramadan and plant turnarounds in Middle East may prolong this period of supply shortage, mainly in importing regions like Europe, where some downstream processors are struggling to find the volumes they need," Meazza said.

Ramadan is the month-long Muslim fasting month, which begins on 12 April this year.

On PE pipe grade, buying sentiment in the Middle East has weakened ahead of Ramadan, as downstream construction activity slows with shorter working hours, curbing pipe demand.

Buyers have started to resist further price increases amid lukewarm downstream demand.

Some petrochemical plants in the Middle East are currently on unplanned shutdowns, including Saudi's Sadara Chemical’s cracker with a 1.5m tonne/year ethylene capacity due to a technical glitch.

Oman's OQ was forced to shut its 340,000 tonne/year polypropylene (PP) unit following a technical disruption at an upstream unit. This outage is expected to affect OQ’s PP supply for April, according to market sources.

Qatar Vinyl Company (QVC), meanwhile, has earlier this week declared force majeure on chlor-vinyl operations. It produces 370,000 tonnes/year of caustic soda; 330,000 tonnes/year of chlorine; 890,000 tonnes/year of ethylene dichloride (EDC); and 355,000 tonnes/year of vinyl chloride monomer (VCM) at the site.

Concerning polyvinyl chloride (PVC), trade was limited in the Gulf Cooperation Council (GCC) and the East Mediterranean (East Med), as there were few offers in the import markets due to tight supply.

Some buyers looking to replenish stock levels looked to Asia for spot cargoes.

Tight PVC supply conditions are expected to persist amid lack of deep-sea cargo.

Meanwhile, there are minimal known maintenance among base oils plants in the Middle East in the first quarter of the year.

Despite that, spot base oils supply is likely to remain challenged, with many producers having reduced output in part due to lower feedstock availability.

Focus article by Felicia Loo and Veena Pathare

Additional reporting by Izham Ahmad and Zhi Xuan Ho

Photo: Ships anchored outside the Suez Canal in Ismailia, Egypt, 25 March 2021. Navigation through the Suez Canal is temporarily suspended until the re-floatation of giant container ship Ever Given is completed. (Photo by KHAL ED ELFIQI/EPA-EFE/Shutterstock)

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