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Middle Eastern PP, PE exports hampered by freight crisis, turnarounds

by Merve Madakbaşı - mmadakbasi@chemorbis.com
  • 12/01/2024 (02:40)
Markets have seen the biggest shipping upheaval since the COVID-19 pandemic as the Red Sea unrest spoiled the industry with skyrocketing freight rates, equipment shortages, delivery delays and longer lead times. Polyolefin players have been facing significantly reduced availability from Middle Eastern producers since the second half of December, as a spate of factors has created a “perfect storm”.

The Red Sea turmoil, which caused shipping bottlenecks and skyrocketed container prices, Saudi Arabia’s potential restriction on PP exports from local resellers, and a series of planned shutdowns in the region, led to a swift upswing in Türkiye and Egypt.

Meanwhile, all this perfect storm is yet to find reflection on Asian markets, unlike Türkiye and Egypt. This is partly because shipments to Asia have not been clogged much particularly from the eastern ports of Middle Eastern countries like Jubail and Dammam in Saudi Arabia and Jebel Ali in the UAE. Although players in Southeast Asia have reported that Middle Eastern volumes are reduced and rising freight rates will inevitably reflect onto new import offers, underlying fundamentals of the market - growing local stocks ahead of Chinese New Year holidays and muted demand amid the failure of the much-anticipated post-pandemic economic boom have kept the upside limited so far.

Now, let’s take a quick look at these markets to see how they’ve responded to this perfect storm.

Türkiye: PP prices hit new highs on delayed Saudi cargoes

According to ChemOrbis Stats Wizard, Saudi Arabia’s main export PP destination is Türkiye with a 20% share, followed by India with a 10% share. Therefore, the Turkish market has, needless to say, been hit hard by these developments in the past few weeks.

The bull run in Türkiye’s import PP market gained momentum last week as traders shied away given a lack of price clarity from their Saudi Arabian suppliers. Some traders sought surcharges on their previously sold cargos, blaming the recent jump in shipping costs, while many of them failed to set new prices due to unstable shipping costs.

This week, new shipment offers for Saudi Arabian PP raffia and fibre neared $1100/ton and $1200/ton CIF Türkiye, respectively, due to short supply while nearing cargos were priced even higher. “Most regional sources cleared their stocks late last year, which also reinforced tightness, let alone panic buying on the side of converters,” players noted. The rumor has it that some producers have not completed even their December shipments.

PP turnarounds are imminent in Saudi Arabia and the UAE

On top of delivery delays, several shutdowns on the side of Saudi Arabian PP producers will likely keep export availability inadequate for next month. Advanced Petrochemical, Al-Waha and Petro Rabigh are among the major Saudi Arabian companies that plan turnarounds later this month or in February while the UAE’s Borouge is also said to be conducting partial maintenance.

To track regional and global shutdowns, please see ChemOrbis Production News Pro

PP export limitation from Saudi Arabia rattles regional markets

Volumes from Saudi Arabia may be curbed further in the coming term based on the kingdom’s consideration of some limitations on PP exports through unlicensed sales channels. The news has caused confusion among players, both locally and regionally. Although the market needs further clarity on the issue, it may keep jitters over the supply from the country in place.

Mid-East PE supply flow to Türkiye disrupted, as well

For January, Middle Eastern suppliers had limited LLDPE and HDPE film volumes for Türkiye given the rerouting of several cargos, which led to longer lead times. Vivid demand from consumers caused other Middle Eastern sources to sell out their modest allocations quickly as well. “Supply has dried up in the first week of the month due to robust resin demand,” confirmed a source from a regional producer.

Apart from logistic mishaps, the news that a regional PE producer has shut one of its LDPE lines for planned maintenance has kept the supply outlook tight. The unit is slated to remain offline until H2 February.

Adding to the scene have been equipment issues as the longer transit times have been said to be causing a lack of container returns from Asian markets to Türkiye and Europe. A source from a regional producer said, “Sailing times have lengthened to around 50 days, while this has caused equipment shortages in the shipping industry.”

Egypt: PP, PE prices are sharply higher

Egypt’s PP and PE markets have also faced a spillover impact from climbing freight rates, not to mention the effect of discussions over a possible restriction on Saudi Arabian PP exports from local resellers on the sentiment. A PP converter opined, “The recent discussion about Saudi Arabia’s aim to restrict exports and the Red Sea shipping turmoil resulted in limited import offers this month.”

Middle Eastern polyolefin offers were few and far between, mirroring reduced export volumes from the region. A Saudi Arabian major applied $50/ton increases for PP from December, while skipping PE offers, blaming the lingering shipping disturbances.

A bullish scene was also monitored in the country’s local markets, with curbed imports amid the rising USD/EGP coupled with soaring global transportation costs leading to large hikes for another week. The distribution channel seems to be prone to additional hikes in the coming weeks regardless of demand, as import supply is not likely to find much relief any time soon.

Asia: PP, PE markets remain relatively intact

Players in Asia confirmed relatively reduced exports out of the Middle East. However, the region has been less affected so far due to smoother shipments from the eastern ports of the Middle East and growing domestic capacity. In China, high domestic stocks, lower futures markets and muted downstream demand ahead of the Lunar New Year holiday counterbalanced the impact of climbing freight rates. Indeed, PP prices succumbed to weak demand conditions, while scarce import offers lent some support to PE offers for cautious gains.

In Southeast Asia, import PP prices were higher and PE prices were flat this week, but the sentiment for both products was bolstered by rising shipping costs. A source from a Middle Eastern producer commented, “Buyers are getting ready for a long holiday, so they are not so interested in replenishing. The post-CNY holiday outlook appears blurry between tight import availability amid the Red Sea unrest and still weak economies.”

Can Mid-East supply disruptions and rising freight rates outstrip fundamentally weak market conditions?

Saudi Arabia alone met 30% of ASEAN’s total PP imports and 40% of PE imports in 2023, standing as the largest supplier of the region, according to ChemOrbis Stats Wizard. Any delays or disruptions from this crucial supply source along with an unfolding spike in freight rates should theoretically be reflected in the region.

However, there is this perfect storm in the Middle East on one hand and fundamentally weak market conditions on the other. Demand is so fragile amid the failure of the much-anticipated post-pandemic economic boom, local stocks are growing inside ahead of the holidays, increasingly more capacities are on their way; thus, some players think that these factors may balance out each other.

A Vietnamese PP converter noted, “We don’t plan to buy more as inventories are high and end demand is not brisk. The Red Sea problem has affected our business too, as we’re struggling to export our end products to Europe nowadays.”
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