PE outshines PP in Asia amid bullish waves

In recent weeks, the Asian polyolefin markets have witnessed a notable disparity between PP and PE, with PE riding a bullish wave while PP has lagged. The trend began in mid-December 2023, with PP prices in China and Vietnam experiencing some downward adjustments in the week ending January 12. This raises the question: What factors are contributing to this divergence in performance?

Widening gap between homo-PP and PE film grades

In China, the three main PE grades rose by 3-6% since the uptrend kicked off, while homo-PP prices saw a minor increase of 1% during the same period, according to ChemOrbis data. This led to wider deltas between the prices of homo-PP raffia and inj. and PE grades, particularly LDPE film, considering them
grade’s growing premiums over HDPE and LLDPE film.

In Southeast Asia, although PP prices showed larger gains than PE prices during the past month, this has changed recently. The rise in PP took a breather last week, while the prices for PE film grades continued to move up, outpacing PP gains.

Surging freights, fewer ME offers on spotlight

The Red Sea turmoil gave sellers an upper hand in terms of skyrocketing freight rates. A converter said, “The Red Sea tensions are impacting freight costs and shipping duration, delaying the arrival of cargoes to Asia.”

While the issue has yet to significantly disrupt Middle Eastern shipments to Asia like other global markets, players have confirmed relatively reduced volumes. Besides, ongoing and expected maintenance turnarounds in the Middle East signaled a reduction in the number of offers from regional suppliers, underpinning market sentiment to some extent.

Same factors, but milder impact on PP - Why?

However, the above-mentioned bullish catalysts have appeared to provide stronger support for PE when compared to PP, contributing to the better performance of the former. The reason behind this may lie in Asia’s huge source of PP supply.

ChemOrbis Production News Pro suggests that the total PP production capacity in China is expected to reach more than 50 million tons/year in 2024, while the figure for South Korea is around 9.2 million tons/year. Consequently, these two countries play a crucial role as significant PP suppliers for the surrounding regional countries.

South Korea ranked the second in terms of PP exports to Southeast Asia in 2023, coming after Saudi Arabia, while China was the fifth top supplier to the region, according to data obtained from ChemOrbis Stats Wizard. As for China, last year’s top PP supplier was South Korea, which was followed by Singapore, the UAE, Taiwan, and Saudi Arabia.

On the other hand, Asia heavily relies on other regions, particularly the Middle East, for PE supplies. Saudi Arabia, accounting for about 30% of all PE imports into Southeast Asia in 2023, has been a crucial provider. The United States came next, with a share of about 21% last year. The top two PE exporters to China in 2023 were likewise identified as the US and Saudi Arabia. This dependency has made PE grades more susceptible to escalating freight rates and reduced supply from the Middle East compared to PP markets.

How about pre-holiday demand situations?

The demand has not provided meaningful support to Asian polyolefin markets so far. Players have continued to voice opposite expectations regarding a demand recovery ahead of the Lunar New Year, which will fall around mid-February. However, most of them have concurred that the markets might not receive substantial support from pre-holiday demand.

A Chinese trader noted, “Demand has been anemic despite the start of the new year. Buyers are preparing to leave their desks for the Lunar New Year celebration, leading to faltering demand. Additionally, rising downstream inventories, coupled with the slow pace of destocking, derived some buying interest from buyers.”

Additionally, another trader based in Singapore opined, “Converters are buying only limited volumes to restock and as hedges against the potentially higher freight and production costs. The outlook for the first half of the year has remained less positive, with most skeptical of real demand recovery even by mid-2024.”