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Nascent PE price increases may face demand obstacle in SE Asia

by Shibu Itty Kuttickal -
  • 28/09/2022 (02:40)
Last week’s price increases in Southeast Asia’s import PE markets may be headed towards a hindrance in the form of buyer resistance as demand remains weak.

PE markets turned higher last week as offers dwindled, with sellers pointing to lower run rates at plants that kept supplies tight, even as buyers stayed away eyeing lower prices ahead. The increases could be short-lived as demand in the region remains in the doldrums, players said this week.

Prices rise after a six-month downturn

Weekly import LDPE film prices for overall origins were assessed $30-40/ton higher at $1100-1190/ton CIF Southeast Asia, cash, for the week ending September 23. LLDPE film prices were assessed $60/ton higher at $1030-1110/ton, and HDPE film was assessed $80/ton higher at $1030-1110/ton, both with the same terms.

PE – Import – Southeast Asia

The PE markets in Southeast Asia have been on the downswing since mid-to-end March, with prices having fallen till last week by about 35% for LDPE film and by about 30% for LLDPE and HDPE film. HDPE blow-moulding grade had also fallen by about 30% over the same period.

It could’ve been a one-off week, say players

According to market players, the upward trend in the previous week was mostly a result of attempts by sellers to raise prices on the back of a perceived supply tightness in the market. In fact, buyers and sellers were both pointing to supply tightness during the week, with some attributing the tightness also to a prolonged period of buying inactivity as players kept waiting for prices to keep falling.

But the narrative is slightly different so far during the week. “While offers have remained stable and high, demand is too weak,” said a Vietnamese representative of a major Asian trader. “But as crude prices dropped by a lot early in the week, players are expecting PE prices to fall. We’d rather remain in a wait-and-watch mode,” he added.

“The market is too quiet,” said a Malaysian trader. “Most people are not convinced by the reasons for the price increases last week. And, we have mostly seen stable prices, following last week’s increases. Demand for plastic end-products have also remained too weak. We’d rather keep buying only for our immediate requirements,” he added.

Players have also questioned the sustainability of run rate cuts for an extended period. “How long can plants be kept closed without affecting their profitability?” a regional trader asked. “At some point in the near term, producers would have to raise the operational rates and that would increase supplies in the market,” he added.

Economic downturn makes raising prices difficult

Meanwhile, high inflation, depreciation of regional currencies and a recession looming large have also made it difficult to sustain the high import prices.

“Demand is very weak. The high inflation has made downstream buyers hesitant as they want to spend money judiciously. Meanwhile, banks have tightened credit. We’d rather buy only for immediate requirements,” said a converter, also in Vietnam.

Another compatriot converter also blamed the economic situation for keeping buying minimal. “Demand is not as good as we expected for the season, because of the high inflation and recessionary environment. Cash flow is quite tight as banks have tightened credit and this has made it difficult to buy our raw material. The market may not recover in the near term,” he added.

SEA buying ideas too low for Chinese re-exports to work

Meanwhile, a few regional and Chinese traders saw the possibility of LLDPE re-export offers to Southeast Asia because of an adequate pricing gap between the regions and sliding freight rates. But Southeast Asian buying ideas remained too low for the arbitrage to work as of now, they added.

“The LLDPE film pricing gap between China and Southeast Asia could have opened up opportunities for arbitrage players. Re-export LLDPE offers from China to Vietnam are in a $1050-1070/ton CIF band. But we don’t see much buying interest at those lower levels,” said a Chinese trader.

At the same time, demand saw some strengthening in the Chinese market. Players expect the China PE markets to close September on a stable to slightly firmer note as demand conditions improve amid the Golden-September-Silver-October season. Supply pressure is also lower, helping the sentiment.

Such a situation in China should be net positive for the Southeast Asian markets, but Chinese buyers have resisted the cautious firming in the market. They are holding out for prices to fall, while at the same time watching closely the energy market values.
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