GPCA: New Middle East capacity heralds growth in polymers exports to China

12 December 2011 00:00 Source:ICIS Chemical Business

New Middle East polyolefins capacity will see even more material being shipped to China to satisfy its huge demand for imported polyethylene and polypropylene

As a key exporter of polyethylene (PE) to China, the Middle East accounted for 43% of China's total PE imports of 4.7m tonnes in the first eight months of this year, mainly driven by supplies from Saudi Arabia and Iran, according to China customs data.

With more than 4m tonnes of new PE capacity scheduled to come on stream in the Middle East between now and 2015, Middle East producers will dominate the China PE market for the next few years, leveraging its feedstock advantage, according to industry sources. Iran stands to lose out in the export business because of the economic and financial sanctions imposed by the US and the EU on the country. Many banks do not accept payment in US dollars for Iranian cargoes of different products, including PE, because of the sanctions.


 International shipping companies dock their vessels at Port Rashid, Dubai

Copyright: Corbis

Traders in Asia and the Middle East have continued to export PE from Iran to China by making payments in euros through third-party companies in Dubai. However, Iran's PE exports could be further hindered by the recent decision by the US to impose sanctions directly on Iran's petrochemicals sector as it seeks to ramp up pressure on the government.

The Middle East exports less polypropylene (PP) to Asia compared with PE, primarily because it does not enjoy significant feedstock advantage for PP. But capacity additions in Saudi Arabia and the United Arab Emirates (UAE) in recent years have driven up Middle East producers' share in China's PP import market.

Iran was the largest exporter of LDPE to China in 2010, exporting 240,000 tonnes to the country, which accounted for about 17% of China's total LDPE imports. Iran maintained its top exporter position in the first eight months of this year, exporting 190,000 tonnes of LDPE to China, up by 3% year on year. The other three leading LDPE exporters to China in the January-August 2011 period were South Korea, Qatar and Saudi Arabia. These top four LDPE exporters accounted for 60% of China's total imports for January-August 2011 period.

Imports from Saudi Arabia, Qatar and Thailand have been on the rise over the past four years. Saudi Arabia and Qatar, particularly, are likely to gain larger shares of China's LDPE import market because new plants are scheduled to start up at the end of 2011 or early 2012 in these two supply countries.

China's LDPE imports consist mainly of film and coating grades. According to industry sources, the bulk of LDPE exports from South Korea, and a significant portion of the volume from Qatar, are coating grades. All the LDPE exported from Iran and Saudi Arabia are film grades.

China PE Imports

Saudi Arabia has been the top LLDPE exporter to China since 2005, with a lead of more than 10% over its closest competitor - Singapore. The new capacities scheduled to come on stream in Singapore at the end of 2012 are likely to close the gap between these two exporters. The other top LLDPE exporters to China are Thailand, South Korea and the US. Most of the product exported from the US in the past two years has been hexane-based metallocene LLDPE.

Qatar's LLDPE exports to China rose significantly following the start up of Qapco's new plant early this year. Qatar's LLDPE exports to China rose to 8,568 tonnes/month in the first eight months this year. Last year's monthly average over 12 months was 4,339 tonnes. Kuwait's and UAE's LLDPE exports to China have been consistent in terms of quantity. The sole LLDPE/HDPE producer and exporter in Kuwait, Equate, debottlenecked its LLDPE/HDPE capacity in mid-2009, but its exports to China have not increased markedly because the added capacity was small.

Some regional distributors say Equate has diverted part of its supply from Asia to other markets such as Africa and Europe for better margins, but this could not be confirmed with the producer. UAE's sole LLDPE producer and exporter, Borouge, caters mainly to the specialty application sectors, industry sources say.

China imported 3.5m tonnes of HDPE in 2010, of which 39% came from the Middle East. China's import statistics show that from January to August this year, South Korea was the top exporter of HDPE, accounting for 18.5% of China's total HDPE imports. It was closely followed by Saudi Arabia, Iran, the UAE and Thailand.

There are different types of HDPE, including film, blowmolding, injection, pipe and yarn. Official trade statistics categorized by the different HDPE grades are not available. According to industry sources, Saudi Arabia and Kuwait are key exporters of HDPE film grade to China. Film grade export from Saudi Arabia will increase significantly next year following the start-up of Saudi Polymers' 1.1m tonnes/year HDPE plant at the end of 2011 or early 2012. Qatar exports mainly blowmolding grade, and a large portion of the HDPE from the UAE consists of pipe grades.

Iran's HDPE exports to China in 2009 and 2010 consisted mainly of film grade. The quantity of film grade HDPE exported from Iran fell dramatically in 2011 because of the economic and financial sanctions imposed on the country, industry sources suggest.

A number of HDPE plants in Iran stopped or reduced production this year because they could not obtain equipment and spare parts as a result of the sanctions, the sources add. These Iranian plants had ramped up production in the third quarter of 2011, but most of the supply consisted of injection and blowmolding grades of HDPE, they note.

It is estimated that from 2012 to 2015, Saudi Arabia will overtake South Korea as the leading HDPE exporter to China. The new HDPE plants started up in Saudi Arabia in 2010 and 2011 will have ramped up their production rates, and a large volume of new capacity will be added in Saudi Arabia over the next few years.

Iran may eventually catch up to become the leading exporter to China, as several petrochemical plants are scheduled to start-up in the country in 2012. However, the financial and economic sanctions imposed on Iran may delay the start up of these new projects, curbing the country's aspiration to be a key HDPE exporter to China.

China PE Imports 
China imported 3.8m tonnes of PP homopolymers in 2010, of which about 21% was accounted for by Middle East suppliers, mostly from Saudi Arabia, Oman, UAE and Kuwait. Of these four suppliers, only Saudi Arabia made it to the top 10 list of PP exporters to China in 2010.

Saudi Arabia replaced Taiwan as the second largest exporter of PP homopolymers to China in 2009, accounting for 17.7% of China's total PP homopolymer imports for that year. The imports from Saudi Arabia from January to August this year accounted for 18.1% of the total, eroding the market shares of South Korea, the top exporter of homopolymer PP to China. PP homopolymer exports from Saudi Arabia will increase further next year following the start up of Saudi Polymer's 400,000 tonne/year PP plant at the end of 2011 or early 2012.

UAE became one of the top five PP homopolymers exporters to China in the first eight months this year, following the recent start-up of Borouge's new PP plant in the UAE. UAE's share of China's PP homopolymers import market jumped from 0.7% in a 12-month period last year, to 5.8% for the January-August period this year.

China imported 550,000 tonnes of PP block copolymers from January to August this year, of which 15% came from two Middle East countries, Saudi Arabia and the UAE. South Korea and Singapore were the top two exporters of PP block copolymers to China during this period, accounting for 32% and 22% of China's total PP block copolymer imports.

Middle East producers have been making inroads into the market through competitive pricing against material made in China and supply from Asian countries. Despite their smaller quantity, the presence of lower-priced Middle East PP block copolymers have capped the import prices this year. The price gap between PP block copolymers and PP homopolymers have disappeared as a result.

Imported PP block copolymers used to be priced $30-40/tonne above imported PP homopolymers. Faced with thinning margins, many naphtha-based PP producers in Asia have diversified to other types of PP copolymers, such as random copolymers and pipe grade copolymers, which could yield better margins.

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By Chow Bee Lin and Ong Sheau Ling