OUTLOOK ’16: GCC polymer producers brace for price pressures in Q1

DUBAI (ICIS)–Polymer producers in the Gulf Cooperation Council (GCC) region expect strong downward price pressures in the first quarter of 2016 because of weak regional demand, oversupply and possible competition posed by Iran, industry sources said.

“We are extremely worried,” said a GCC-based supplier of polyethylene (PE) and polypropylene (PP).

The GCC comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE.

Polymer demand in the Middle East has been weak since late September, coinciding with the end of the Muslim festival of Eid-ul-Adha or the Feast of Sacrifice.

“Since Eid-ul-Adha, we have not bought much polymers. Need-based buying is what we are currently practicing,” said a major buyer in the Middle East.

UAE’s Borouge is ramping up production at the third phase of its expansion, also known as Borouge 3.

“Borouge is very aggressive now with its offers. We are seeing more competition in the Middle East,” a Dubai-based distributor said.

Borouge 3 comprises a 1.5m tonne/year ethane cracker and derivative plants, including high density PE (HDPE) and linear low density PE (LLDPE) units with a combined capacity of 1.08m tonnes/year; a 350,000 tonne/year low density PE (LDPE) unit; and two PP units with a combined capacity of 960,000 tonnes/year.

In Saudi Arabia, Sadara Chemical started up on 7 December a 375,000 tonne/year linear low density polyethylene (LLDPE) plant, the first of the 26 petrochemical units at its Jubail complex.

The Jubail complex, which is a joint venture between state energy firm Saudi Aramco and US’ chemical giant Dow Chemical – will be able to produce 1.08m/tonnes of PE. It is the first petrochemical complex in the Middle East that will use naphtha as feedstock.

“The outcome is inevitable – more capacity in the Middle East only means lower prices,” a Middle East buyer said.

Adding to the supply woes is the expected return of Iran in the global polymer scene. The country is a major PE producer in the Middle East that was prevented from exporting to its main market – Europe – by international sanctions imposed on suspicion that it was developing a nuclear weapon.

Iran has since agreed with world powers to curb its nuclear program in exchange for the lifting of the sanctions. Most market players expect the sanctions to lifted early next year.

It would mean that major suppliers in Saudi Arabia, Qatar and the UAE will compete directly with Iran in the European market.

“The Iran factor is unsettling many GCC producers. Prices should dip once Iran returns,” said a Dubai distributor with close links to Iranian suppliers.

Buyers may also turn more cautious in procuring cargoes next year amid the bleak macroeconomic outlook prevailing in the Middle East, industry sources said.

Meanwhile, concerns about possible default will pose difficulties for buyers to secure credit, they said.

“Middle East polymer suppliers are more careful of giving credit to less established players. This could worsen the buying appetite even further for 2016,” a Dubai-based PE trader said.

By Muhamad Fadhil