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Supply constraints spark stronger PE trend than PP in global markets

by Merve Madakbaşı - mmadakbasi@chemorbis.com
  • 03/07/2020 (04:10)
COVID-19 pandemic gave global polyolefin players a rough ride during the first half of 2020 with volatility in energy markets and mounting economic woes. PP and PE prices across the board were in a downward spiral in late Q2 before they turned up by around late April-early May bolstered by higher upstream chain and the re-opening of economies.

Polyolefin prices in China, Southeast Asia, Europe, Turkey and Africa have extended their gains to July. Yet, PP has not been as strong as PE due to some factors varied by region as follows:

· PE supply from Middle East, Iran and the US tightens
· Demand for PE was bolstered by resuming economies
· Spot ethylene posted faster gains than propylene

Asia

Saudi major’s PE hikes outpaced PP in China

Earlier this week, a Saudi major lifted its July offers by $50/ton for LLDPE film and PP raffia, $70/ton for LDPE film and $80/ton for HDPE film month-over-month.

An agent of the producer explained, “Import LDPE and HDPE volumes are tight. The producer has a plant issue which reduced HDPE b/m allocation in particular. Demand for PP has been weak as the prevailing offers are deemed too high to be accepted, meanwhile.”

China and SEA face tight PE availability

Import PE prices are assessed $20-40/ton higher on CFR China basis versus steady to $10/ton higher PP offers. PE and PP offers are up by $10-20/ton on CIF SEA basis week over week.

In terms of supply, delayed shipments from Iran, which is China’s top LDPE and second HDPE supplier, led to a growing tightness in the country. Chinese traders reported to ChemOrbis, “Four vessels were delayed due to a bureaucratic process following US sanctions. They were supposed to arrive at the ports by May but the unloading was postponed to early July.”

In Southeast Asia, HDPE displayed a stronger trend in particular in response to maintenance shutdowns at PTT Global Chemical’s 300,000 tons/year unit in Thailand and Lotte Chemical Titan’s 335,000 tons/year plant in Malaysia.

A global producer explained, “HDPE and LLDPE offers have been hiked further since some SEA producers have plant issues. Plus, high ethylene prices pushed production costs up.”

For PP, meanwhile, IRPC has restarted one PP line in Thailand after a turnaround. This coupled with signals of buyers’ resistance towards hikes may curtail additional increases, according to regional sources. Chinese players similarly commented, “New PP capacities are due for start-up in the second half of the year which may weigh on the sentiment.”

Gains in ethylene prices outpaced propylene

Spot propylene prices have soared 23% since late April to be recently quoted at a 2-month high of $755/ton FOB Korea, according to ChemOrbis Price Wizard. Looking at ethylene, the cumulative gain totaled 140% in the same period. The rally pushed prices to almost 10-month high near $900/ton CFR China basis.

*Right click the image and open in a new tab to view the full-sized snapshot.



Europe

Ethylene hike surpassed propylene after prolonged discussions

PP and PE markets were on hold amid a tense wait for the outcome of July olefin contracts. The prolonged discussions for ethylene put PE players on the edge and caused suppliers to hold their price announcements. Ethylene settled up €84/ton versus a €75/ton hike in propylene settlement.

Increase requests beyond €50/ton may face resistance

In June, deals in Italy’s spot markets were wrapped up with increases of €40/ton for PP and €60/ton for PE. Although activity has recovered following the gradual re-opening of European economies, overall demand has yet to be back to pre-virus levels.

Players opined, “Converters may refuse to pay hikes matching with olefin contracts’ in case demand does not really revive ahead of summer holidays. Some PP converters were already involved in pre-buying activity back in the previous weeks, moreover.”

PE draws a firmer picture mainly due to low LDPE supplies. European sellers issued additional increases by late June as demand occurred for extra volumes amid diminishing stocks.

Turkey

Turkey’s import markets extended their gains to July in line with expectations although cooling demand in late July generated some cautiousness among polyolefin players.

Cost-driven increases started to emerge this week whereas PP showed a steady to slightly firmer trend on the contrary to notable PE hikes.

Middle Eastern producer applied $60-70 increase for LDPE

A few sellers voiced their initial July prices with $30-40/ton increases for HDPE and LLDPE, while tight local and import LDPE supplies caused larger hikes for this product. A regional producer noted prior to the European ethylene contracts, “Our prices are temporary and subject to change in accordance with ethylene contracts. We have limited allocation for another month.”

*Right click the image and open in a new tab to view the full-sized snapshot.



Asian PE sellers shy away from Turkey

Restricted supplies from the Middle East stemmed from healthy sales of regional suppliers to China. Adding to the scene, US PE offers were scarce amid modest July volumes. A packager affirmed, “Traders are unable to set a price for American PE, they may talk for August cargos.”

South Korean PE producers were said to have focused their ethylene sales amid cost spikes. A pipe manufacturer noted, “Another reason behind reduced supplies is buoyed demand from China. The government encouraged infrastructural projects to boost the economy after containing the outbreak which keeps HDPE pipe 100 volumes to Turkey limited.”

PP already provides healthy netback, PE still under upward pressure

PE fares better than PP in Turkey given supply-demand dynamics while theoretical calculations also support the scene. According to the ChemOrbis Price Index, the premium of Turkey’s homo-PP market over China has widened to $96/ton from last week’s $80/ton.

This 3-month high premium made Turkish players think that further PP hikes would not be digestible despite rising costs. “A number of converters are now covered, while their goods exports from Europe and the Middle East have not fully recovered yet,” said a converter.

However, import PE trades only $35-37/ton above China for HDPE and LLDPE C4 film while the premium of LDPE stands at $53/ton, data revealed. “In case demand appears supportive enough, prices may post some more gains. Yet, we are not certain about August as we can’t rule out a possibility of correction in Asian ethylene prices which stand above PE markets in the region,” a player argued.

Egypt and Africa

PE hikes of up to $70/ton from a Saudi major in Egypt

Similar to the case in China, a Saudi Arabian major unveiled increases between $40-70/ton to Egypt for the new month with pending negotiations at the time of writing. Middle Eastern sources asked for initial PP increases of $20-50/ton before deals were concluded with slight discounts. The size of PE products appeared larger than PP in some cases.

Lack of US PE offers in Africa

Easing sales pressure amid lower stocks and increasing demand in global markets allowed US PE sellers to push through increases in June. Offers have become scarce both in South and West Africa as July kicked off.

For PP, Korean offers to Nigeria came with notable hikes but players were skeptical about their workability, on the other hand.

The measures imposed to curb the outbreak have been eased across the region recently despite a continuous surge in cases. “We hope that helps demand to improve in the coming days,” said a player. The rainy season in West Africa and economic challenges may weigh on the firming, some others argued.
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