Rally across SE Asia import PE markets to extend into April despite resistance

Import PE markets across Southeast Asia have been on an uptrend since early January mainly due to cost support despite limited demand. Now, more price increases have loomed on the horizon with initial offers for April surfacing higher on the back of tightening supply.

Supply tightens as producers cut run rates

Many Asian PP and PE producers have either cut or considered reducing their run rates as olefins prices have hovered around at multi-year highs and hit margins.

As expected, suppliers’ strategy to bear with the high feedstock costs has led to supply tightness.

A source from a regional producer said, “We have lowered our operating rates recently as a result of high raw material prices. So, supply for PP and LDPE is tight, and we don’t have any pressure to sell these products at this moment. Whether we will reincrease our operating rates or not will depend on the movements of energy and monomer prices. Meanwhile, buyers are still very reluctant to make fresh purchases due to high price levels for PE.”

A source from a Middle Eastern producer also underlined the tightness in the market and attributed this to reduced run rates due to high monomers prices. “We think PE prices will remain tight until production margins turn positive, and this will keep prices on the firm side,” he added.

Initial April offers indicate further hikes

In Vietnam, a distributor of a Middle Eastern producer reported that their supplier’s PE offers for April
were announced $110/ton higher for HDPE film and $70-80/ton higher for LLDPE film. Not surprisingly, the producer’s allocation was limited.

Another Middle Eastern producer also reported increasing PE offers to regional markets by $100/ton from last week, mainly citing tightness. “We have started to offer April shipment for LDPE while LLDPE and HDPE are still offered for March shipment,” he said.

Elaborating further, he also added that Southeast Asia is a preferred outlet for Chinese suppliers in terms of re-export activity. “PE prices in China are so much lower compared to Southeast Asia, and buyers there prefer to buy from local instead, as they can easily source material domestically, and prices are so much cheaper than import. So Chinese traders take this as an opportunity to re-export material to Southeast Asia, where they can achieve better netbacks,” he noted.

Demand does not perk up

During this two-month uptrend across Southeast Asia’s import PE markets, buyers have remained mostly cautious against higher price levels as they are unable to reflect these hikes to end-product prices.

As a trader in Indonesia put it, “End-users have mostly stayed on the sidelines given the recent hikes in PE and PP offers. Only a correction in PE offers may motivate them to step back into the market to replenish their inventories.”

Extreme volatility in oil also keeps buyers on edge

The extreme volatility in crude oil prices since Russia invaded Ukraine more than two weeks ago keeps buyers on their toes. Global oil prices fell below the $100/bbl threshold recently after Brent hit the highest levels in the past 14 years on March 7.

While PE prices are mostly expected to remain firm over the near term due to the tightness, some players do not exclude the possibility of a different scenario. A further correction in crude oil prices may find a reflection on monomer prices, and this may cast a shadow over these firm expectations, they argue.

A converter in the Philippines said, “So long as the downturn in crude oil and naphtha prices continues, monomer prices will follow suit eventually. Then, we may witness a downward correction in PE offer levels as well.”