Mideast petchem demand up amid high freight costs, tight container supply

Author: Felicia Loo

2021/08/04

SINGAPORE (ICIS)--Petrochemical demand in the Middle East is on an uptrend during summer while market players continue to tackle high freight costs and severe container shortages.

Polyethylene (PE) and polypropylene (PP) suppliers in the Gulf Cooperation Council (GCC) are looking forward to an Asian-led demand recovery from here on out.

China’s PE and PP imports’ markets have remained mostly sluggish through Q2 due to slow finished goods uptake, but plastics’ demand is said to increase from September on seasonal restocking for the Q4 holiday season, with players eagerly awaiting this.

"Demand is expected to remain strong in China during the remainder of 2021 and exports from Middle East are expected to increase," said ICIS market analyst Lorenzo Meazza.

He added that "issues with logistics are persisting and this will likely bring less flexibility to respond to changes in demand".

"And even considering that the global PE capacity will increase, thanks to numerous projects in different regions, the effective prompt availability of this new material where needed (importing countries/regions) remains at risk," Meazza pointed out.

A severe shortage in container availability and high freight charges persist and may extend beyond 2021, continuing to challenge GCC processors who continue to incur high freight costs in exporting the finished products.

Saudi Arabia and the United Arab Emirates (UAE) – two of GCC’s biggest markets are major PE and PP processing hubs, with converters exporting finished PE products to Europe and Africa in addition to selling locally.

Nonetheless, a large majority of the population that usually travels out of the GCC region for the holiday period are likely to stay in, thus boosting demand for food, household and consumer products and packaging.

When it comes to polyethylene terephthalate, UAE demand outlook is seen flat as population typically exits UAE for summer holidays.

Ample supply in GCC prevails because of regional and Asian cargo sources.

The tight shipping conditions and high freight costs from Asia to the Middle East have hindered Asian exports to the GCC, but at the same time the tight shipping conditions have limited GCC exports to the Americas, leaving ample supply for the GCC.

Meanwhile, thin margins have led to a number of Chinese producers cutting production.

China Resources Chemical (CRC) reduced operating rates to 80% for Zhuhai PET lines while Zhejiang Wankai New Material shut one PET line in Haining.

Other run cuts included Sinopec Yizheng shaving rate to 60%; Yangzhou Baosheng lowered rate to 66%; and Sanfame Group down to 70-90% rate.

Concerning polystyrene in the East Med region, demand has been getting better gradually thanks to the summer vacation season during which downstream demand for dairy product packaging and meal boxes is on the uptrend.

On base oils, Iran Group I supply is expected to be sufficient despite stronger local demand and shortage of Group II Asian bulk shipments to Middle East would persist while UAE importers are likely to face persistently firm freight costs.

There are minimal known maintenance shutdowns so far among base oils producers located in the Middle East through the second half of the year, though there was some unconfirmed talk of an Iranian producer due to undergo maintenance shutdown.

Spot supply for Group I and Group II are improving, albeit slowly.

Additional reporting by Veena Pathare, Izham Ahmad, Hazel Goh and Damini Dabholkar

Focus article by Felicia Loo

(Image: Containers at a Chinese port)