OUTLOOK ’17: Mideast PE/PP price outlook weighed by ample supply

Veena Pathare

27-Dec-2016

PP woven bags

SINGAPORE (ICIS)–New polyethylene (PE) supply expected to come on-stream in 2017 is likely to weigh down on Gulf Cooperation Council (GCC) spot prices in the first half of the next year.

Demand for plastics in key sectors such as packaging, consumer goods and construction remains hampered as a result of a lacklustre macroeconomic performance brought on by a weak crude environment, market sources said.

GCC’s PE demand is likely to remain largely similar to that seen in 2016 and the additional surplus supply resulting from newer startups is expected to weigh down on PE prices in the months ahead, market sources said.

“I don’t think there is any scope for prices to go any other way other than down considering so much PE capacity is coming up,” a GCC-based importer said.

Sadara Chemical Company (Sadara) started up its 1.5m tonne/year mixed-feed cracker in late August 2016 and is likely to commence commercial operations at its 350,000 tonnes/year low density PE (LDPE) and 750,000 tonnes/year of linear low density PE (LLDPE)/ high density PE (HDPE) swing facility in the first quarter of 2017, according to industry sources.

Speaking to GPCA TV at the sidelines of the 11th Annual GPCA forum in Dubai on 27-29 November, Saudi Aramco vice president for chemicals Warren Wilder had previously announced the start-up of downstream derivative plants at the Sadara’s mega complex in a phased manner, week after week, in early 2017.

ONGC Petro-additions Limited (OPaL) based in India started up its mixed-feed cracker in Dahej, Gujarat, India in late-November and looks to commence operations at its downstream PE units in the first quarter of 2017.

OPaL’s cracker that has a 1.1m tonne ethylene capacity is expected to provide feedstock to two HDPE/LLDPE swing units with nameplate capacities of 360,000 tonnes/year each and a 340,000 tonnes/year stand-alone HDPE facility, according to the company’s website.

Major Indian producer Reliance Industries is also expected to start-up its LDPE and LLDPE/HDPE units in late first quarter or early second quarter of 2017, adding on to PE supply.

These newer start-ups in India are expected to primarily cater to the Indian market, according to industry sources. Indian PE imports are, however, expected to come off sharply, leading to a surplus availability among Middle Eastern PE producers.

Market players deem PE demand in the GCC markets to remain largely capped by the pessimistic macroeconomic situation in the region.

Most economies in the GCC have been reeling under the impact of lower crude values since the oil price slump in the second half of 2014.

With crude oil exports forming the primary source of revenue for countries in this region, the economic situation in the region is not likely to see a major change from that in 2016, according to industry sources.

“Crude prices are likely to fluctuate between $45-$60/bbl, and the competition from shale will not allow it to go up further. We are not expecting any improvement in the economic situation in 2017 at least,” a GCC-based trader said.

Similarly, polypropylene (PP) prices in the Middle East are also expected to come under downward pressure following rising supply in the key China market, according to market sources.

China is expected to move one step closer to achieving self-sufficiency for PP in 2017, with the start-up of coal-to-olefin (CTO) and methanol-to-olefin (MTO) plants in the country.

These plants are due to add to domestic PP production within the country and bring down import inflows, thereby resulting in surplus PP supply across markets, market sources said.

“PP prices are likely to come under pressure because of rising supply in China, while PE will be hit by additional supply from within the region,” a GCC-based trader said.

Polymer demand in the East Mediterranean (East Med) region is poised to remain weak as the region reels under the impact of the ongoing political crisis in Iraq, Syria and Yemen.

Jordan-based importers deem polymer demand in the country to remain weak, plagued by weak finished product exports into the key market of Iraq.

“Iraq serves as the primary market for most converters since the domestic market is small. Sales into Iraq have remained weak ever since the war broke out and we don’t expect any change in the situation until the political situation resumes to normal,” a Jordan-based trader said.

“Although there were talks of the Iraq-Jordan border reopening in June this year, it did not happen. As long as the border remains closed, business for all finished products into Iraq will remain poor. There also seems to be no announcement on when will the border actually open,” the importer said.

“This weakness in end-user demand is expected to weigh down PE and PP prices in 2017, much like what we saw in 2016,” the Jordan-based importer added.

Mideast PE PP Veena

By Veena Pathare

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