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Bearish pressure mounts on SE Asian PE markets

by Shibu Itty Kuttickal - sikuttickal@chemorbis.com
by Esra Ersöz - eersoz@chemorbis.com
  • 24/11/2021 (03:03)
Bearish sentiment has permeated the PE marketplace across Southeast Asia recently. This is because pressure has grown from Chinese re-export offers and more regional supply coming from new capacities and returning plants. The upstream costs are also poised to contribute to the bearish undertone.

After reaching a 17-week high in the third week of October, prices of all PE grades in the region have softened by 1-2%.Import LDPE prices for all origins were last assessed $10-40/ton lower at $1590-1700/ton on CIF SEA, cash basis. LLDPE prices were $20-30/ton lower at $1290-1350/ton and HDPE film prices were stable to $10/ton lower at $1220-1300/ton, both on CIF SEA, cash basis.

SEA PE markets lure Chinese sellers back for re-exports

Prevailing import prices in Southeast Asia are currently carrying a larger-than-usual premium over China since PE prices have not seen the same amount of downward adjustments after having peaked in the third week of October. This more favorable netback situation inevitably attracts re-exports from China, where PE markets have embarked on a bearish run since mid-October.

Re-export Saudi-origin LLDPE film cargoes from China have emerged in Vietnam, traders said. “A Middle Eastern supplier has also cut offers by $20/ton for LLDPE and HDPE grades early in the week,” a trader in Vietnam said. Buyers continue to try and push prices down, citing lower C2 prices, a weak demand situation and the pressure from competitive offers of re-exports from China.

In the previous week, LDPE film offers from another Middle East seller fell below the $1600/ton-mark CIF. And, in the current week, a Singapore-based trader reported offers as low as $1550/ton CIF Indonesia. As a comparison, China saw Middle Eastern LDPE offers as low as $1490/ton last week while US LDPE surfaced this week at a much more competitive level of $1440/ton CIF China.

US to add to the pressure

A Vietnamese trader reported market talk of a lot of US-origin cargoes making their way to the region, which could put pressure on PE prices. “People are very careful before replenishing stocks as prices haven’t fallen that much and demand is weak. Inventories are comfortable. And, prices in China have dropped a lot so far this week and this may pull down Southeast Asian prices too,” he said.

Oversupply woes loom over PE markets

Having tackled tight supply since the second half of 2021, PE markets are set to see a gradual relief. Apart from the improved import supplies from China and the US, the pressure from new capacities to come online particularly in Northeast Asia is pivotal across PE markets.

According to ChemOrbis Production News Pro, PE markets remain under pressure from some 1.9 million tons of additional capacity since the second half of this year. Meanwhile, a total of more than 5 million tons of PE capacity was planned to come onstream throughout 2021, 75% of which is located in China, needless to say.

The new PE capacities in the Southeast Asia Pacific region are comparatively small as a total capacity of 700,000 tons is expected to be launched in 2021 in the Philippines and India, and another 800,000 tons in 2022 in India, as suggested by ChemOrbis Production News Pro.

Not only new capacities, but also returning plants are to be monitored. Pengerang Refining and Petrochemical (PrefChem), a joint venture between Malaysia’s Petronas and Saudi Aramco, is planning to restart Pengerang refinery in late December, according to sources. The refinery and petrochemical complex in the southern Malaysian state of Johor has been shut since a fire and explosion occurred in March 2020. Following the successful restart of the refinery and cracker, PE plants including a 350,000 tons/year LLDPE unit and a 400,000 tons/year HDPE unit are expected to return to operations in the first half of next year.

Upstream markets yet to drum up support for PE

The same oversupply concerns have been prevailing across ethylene markets in Asia. Therefore, ethylene prices are expected to buckle under a worsening squeeze.

The oil market also ebbs and flows amidst efforts to ramp up production by the US and other major energy consuming nations, including China, Japan, India, South Korea and the United Kingdom, and OPEC’s persistent challenge to keep production growth under control.
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