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SE Asia’s PPH raffia premium over China increases rapidly amid freight spikes

by Merve Sezgün - msezgun@chemorbis.com
  • 15/01/2024 (10:02)
According to data obtained from ChemOrbis Price Index, the gap between import homo-PP prices in Southeast Asia and China has witnessed a notable increase over the past three weeks. This surge is attributed to the ongoing freight crisis, impacting Southeast Asia more prominently than China.

This, coupled with a reduced number of Mid-East offers, has led to relatively rapid hikes in Southeast Asia, while China has remained intact by the freight chaos so far due to higher supplies at home. In fact, CIF China homo-PP prices tracked a stable to softer trend last week following the cautious gains in the previous weeks, with the market succumbing to subdued demand conditions and lower futures.

Raffia delta rises by fivefold since mid-Dec

ChemOrbis data indicate that the weekly average of homo-PP raffia prices on CIF SEA basis recorded a cumulative gain of more than 8% in the past three weeks to reach a three-month high of $985/ton. In China, on the other hand, the total gain over the same period was only 1%, with the average of the weekly price assessment standing at $895/ton CIF as of last week.

Data also highlight that the former’s raffia premium over the latter has surged by fivefold since mid-December to reach $90/ton, the largest delta recorded in the past three months.

China – Southeast Asia - PP

Rising shipping costs drive up prices in SE Asia

For the third consecutive week, the import PP markets in Southeast Asia remained robust, reaching their highest point in three months. This trend persisted as offers continued to climb due to escalating freight rates and turnaround activities at Middle Eastern suppliers, despite a decline in energy and feedstock costs.

Last week, import homo-PP raffia and inj. prices for all origins were assessed $10-40/ton higher from the previous week at $950-1020/ton CIF SEA, cash.

“Persistently high production costs are driven by elevated freight rates amid tensions in the Red Sea. Despite converters exercising caution in their demand projections, upcoming turnarounds in the Middle East are anticipated to exert pressure on availability in the weeks to come,” noted a trader in Singapore.

Bearish sentiment resurfaces in China

Unlike the Southeast Asian region, China experienced a return to a bearish market sentiment last week due to a combination of weakening supply-demand dynamics and a decrease in futures prices. Despite the ongoing turmoil in the Red Sea and the rising freight rates, their influence on the Chinese market is not yet evident. This lack of impact can be attributed to the growing domestic capacities and the country’s diminished reliance on imports, particularly from the Middle East.

As for the week ending on January 12, the overall range for import homo-PP raffia and inj. offers was assessed stable to $10/ton lower from the previous week at $860-930/ton CIF China, cash.

As of January 12, the combined polyolefin supplies from the two major Chinese producers amounted to 620,000 tons. This figure reflects a notable increase of 38% compared to the last reported level in 2023.

Will SEA see more Chinese PP amid reduced ME supplies and rising netbacks?

While shipments to Asia, especially from eastern ports in Middle Eastern countries such as Jubail and Dammam in Saudi Arabia and Jebel Ali in the UAE, have not experienced significant congestion, players in Southeast Asia confirm a decrease in exports from the region. Consequently, the question emerges: Can the combination of rising netbacks and disrupted Middle East supplies pave the way for increased Chinese PP in the region?

Chinese homo-PP raffia offers formed the lower end of the Southeast Asian markets last week, suggesting a potential redirection of Chinese sellers’ focus toward the region amid subdued demand in their local market. However, new capacity additions in the region, such as Vietnam’s Long Son Petrochemicals, and Indonesia’s tightened import regulations may counterbalance increased Chinese PP flows.

Freight turmoil’s ripple effect: SE Asian converters’ shipments to Europe stuck too

In the wake of the ongoing freight turmoil, Southeast Asian converters find themselves on the flip side of the challenge, experiencing delays and disruptions in their shipments to European destinations.

“We are not planning to build any extra stocks due to elevated inventories and sluggish end demand. The challenges in the Red Sea have impacted our business too, posing difficulties in exporting our finished products to Europe at present,” said a converter in Vietnam.

Another Vietnamese converter added, “Overall, the demand is weak. We may opt to postpone replenishing until the end of this month, especially considering the period after the Chinese New Year. The shipping costs have tripled due to the issues in the Red Sea, making trip bookings challenging and impacting our profit negatively. If these challenges persist, it could exert pressure on all converters in the industry.”

A Singapore-based trader commented, “Converters are expressing caution regarding the demand outlook for Q1/Q2 and are maintaining a reserved to bearish stance. Despite projections indicating Southeast Asia’s GDP forecasts surpassing 4%, there is a prevailing sentiment that demand recovery is likely to unfold at a gradual pace.”
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