Southeast Asia PP halts eight-week uptrend; upside limited

SINGAPORE (ICIS)–Polypropylene (PP) import prices in southeast (SE) Asia halted eight consecutive weeks of gains, with upside likely to be limited as buying appetite in the key China market has failed to pick up, market players said on Tuesday.

Supply in this region is being augmented by re-exports of Middle East cargoes by Chinese traders amid an open arbitrage window.

On 3 March, spot prices of all-origin PP flat yarn cargoes were assessed stable week on week at $1,175/tonne CFR (cost and freight) SE Asia, according to ICIS data.

Tight supply of Middle East cargoes had driven up SE Asia PP prices to a 19-month high, gaining a cumulative 7% since early January.

But the uptrend lost momentum last week as Chinese buying appetite has failed to pick up after the Lunar New Year holidays, defying expectation.

The Lunar New Year holiday on 28 January this year was celebrated in most parts of southeast and northeast Asia, with China on holiday from 27 January to 2 February.

Demand for PP in China has been dented as downstream converters in the country are running their plants at reduced capacity amid stricter enforcement of environmental regulations in the country to curb pollution.

Its PP inventory is currently high, weighing down on Chinese import prices of the material since the start of the year.

Most Middle Eastern suppliers have mostly refrained from selling to the Chinese market because of poor margins.

China’s PP flat yarn import prices were assessed at $1,040-1,070/tonne CFR China on 3 March, ICIS data showed.

With dutiable prices in southeast Asia at $1,140-1,160/tonne CFR SE Asia, the spread between spot prices in China and southeast Asia has widened to around $100/tonne, opening the arbitrage window for Chinese exports to southeast Asia.

China’s PP import prices are typically lower by around $20-50/tonne compared with southeast Asian prices.

Chinese traders have been offering Middle Eastern re-export cargoes to buyers in Vietnam, Thailand and Indonesia, thus, limiting buying appetite March spot cargoes coming from the Middle East.

Re-exporting activities have started since after the Lunar New Year, when southeast Asian prices had steadily increased while Chinese prices were largely flat.

“Prices in China have been on the decline in recent weeks, and some buyers see this as a sign that prices in southeast Asia have probably reached a peak and will start to soften soon too,” a southeast Asia-based trader said, adding that most converters haven taken a wait-and-see stance on the market.

Middle Eastern PP sellers, meanwhile, are not keen to lower their offers for March despite weak buying response in southeast Asia.

Last week, producers in the Middle East redirected what little available March shipment allocations to other regions, including Pakistan, Turkey and Latin America; keen to capitalize on the better netback in those markets.

Some producers from the Middle East expressed surprise that inventory levels in China were taking longer than expected to be digested by the domestic market.

“With many Middle Eastern suppliers having halted export sales to China, our expectation was that local producers in China should be able to deplete their stocks faster. However, this has not been the case,” a producer based in the Middle East said.

Some market players said that it may take several weeks before China’s PP inventory returns to normal levels, and spot prices are unlikely to see any significant uptrend until then.

Picture (top): Polypropylene (PP) is used to make plastic food containers. (PhotoAlto/REX/Shutterstock)