Freight chaos diverts China’s PE import demand to nearby Asian sources

As port congestion and surging freight costs have been delaying shipments from the Middle East, several Chinese PE buyers are redirecting their focus towards domestic suppliers and nearby Northeast Asian markets, including South Korea, Taiwan, and Japan, according to industry players.

Freight rates, having surged back to their January peaks by late May, continued to climb in early June, nearing their highest levels since September 2021. This recent surge has been led by routes from China, exacerbated by severe port congestion in major Asian ports, particularly in Singapore. This has been attributed to reduced capacity caused by blank sailings, unpredictable schedules, and increasing delivery times resulting from rerouting. Available goods are often dumped at certain ports as carriers reroute their shipments amid the ongoing Red Sea crisis.

Players: Chinese are shunning cargoes from outside Asia

Chinese buyers’ reluctance to purchase import cargo from outside Asia has become evident amid extended shipping schedules. “PE buyers are either securing domestic cargoes or seeking nearer sources nowadays, as it has become risky to buy Middle Eastern or US cargoes amid the ongoing shipping turmoil given serious delivery delays and port congestions,” noted a trader.

A source from a Taiwanese PE producer highlighted the impact of these rising freight rates on their operations. “Our PE operation rate remains at 50%, but current orders exceed our production rates, prompting considerations to increase our operation rate to 60%. Despite sufficient supply and weak demand, the situation is gradually improving due to rising orders from China,” he explained.

“Several ports in Southeast Asia, such as Singapore, are already relatively congested,” he said, further complicating the logistics.

Interestingly, the current scenario of increased freight costs and decreased oil prices is viewed as beneficial for Northeast Asian PE producers. Reduced costs coupled with shorter shipping schedules enhance their competitive edge. “We expect the PE market to remain stable to firm in the short term,” the source commented.

Echoing this sentiment, a source from a major South Korean producer said, “We have seen better demand from China lately amid the freight surge and tighter regional supplies. Converters want to hedge against further price hikes, and they seem to prioritize the nearby sources given the delivery ambiguities.”

Uptrend in ME offers moderates; NE Asian suppliers stand firm

Last week witnessed several sellers applying a fresh round of increases on offers for Middle Eastern cargoes, marking around the third week of successive hikes to China, albeit at a visibly slower pace.

After achieving hikes of around $30/ton in the previous weeks, last week saw Mid-Eastern origins rising only by $10/ton or staying flat at $1080-1150/ton for LDPE film, at $980-1020/ton for HDPE film, and at $970-1010/ton for LLDPE film, all on CIF China, cash basis.

PE offers from a South Korean producer to China stayed flat last week at $1150-1180/ton for LDPE film, $1030-1080/ton for HDPE film, and $1030-1060/ton for LLDPE film, with the same terms. South Korean PE is subject to 5.9% duty in China, while Middle Easterns are subject to 6.5%.

In the meantime, a Taiwanese producer’s source reported that they sold LLDPE and HDPE film to China last week at $1100/ton CIF, cash, subject to 6.5% customs duty, while Chinese buyers confirmed deal levels at around $1020-1080/ton CIF.

Top 3 suppliers in Jan-Apr: US, Saudi Arabia, UAE

Data from ChemOrbis Stats Wizard Pro reveal that China’s top three PE (HDPE, LDPE, and LLDPE) suppliers during the January-April period of this year were the United States (holding a 20% market share), Saudi Arabia (18%), and the United Arab Emirates (12%).

South Korea held the fifth position with a market share of 7% during the same timeframe, while Japan and Taiwan accounted for only 2% and 1% of the market, respectively.