By John Richardson
The tight supply olefin-polyolefin supply that has characterised markets since the first quarter of last year continues with no sign of relief for resin buyers until at least early April.
But whereas production problems and start-up delays are likely to remain aplenty, the argument for further price hikes has been undermined by falling feedstock costs resulting in a big boost to integrated polyolefin margins.
This will offer some relief to plastics processors who have been complaining of exceptionally squeezed profitability.
The demand outlook received a blow last week when China announced its first major fiscal tightening steps since the beginning of the global economic crisis. But while sentiment was affected by the decision, it seems too early to call a tangible dip in China’s spectacular recovery.
The legion of production issues includes lost output from the Yanbu site in Saudi Arabia as a result of a power outage in late December.
“Yansab and Yanpet had to close down as water entered the plants due to heavy rains which resulted in a power failure,” said a source.
“Yanpet has restarted but Yansab is expected only by end-January.”
This hasn’t been confirmed by SABIC, although the Saudi major’s customers told ICIS news earlier this month that polyethylene (PE) and polypropylene (PP) allocations to Asia had been cut, which seems likely to extend into February cargoes.
ExxonMobil is due to shut its 900,000 tonne/year cracker in Singapore in mid-February for two weeks to change some parts, ICIS news was told by a source familiar with the matter.
The energy giant’s customers in Southeast Asia and China said their February linear-low density PE (LLDPE allocations from the producer would be cut by 20-30%.
And our source added about the Middle East: “”Material from the new Sharq complex at Al-Jubail in Saudi Arabia, which came on-stream earlier this month, is unlikely to hit the Indian market until end-January.”
He also claimed that long-running problems at another major Saudi Arabia complex -which came on-stream last year – still haven’t been resolved.
The Al-Waha 450,000 tonne/year PP plant, also at Al-Jubail, was due to re-start by 7 December following an outage. However, another source said early last week that it had yet come back on-stream
All these tightening factors have been further compounded by an outage at Fujian Petrochemical in China in December, a reported outage at Petlin Malaysia – also in December – and the recent extremely cold weather that restricted plant operations and distribution in northern China.
“The general view is that supply will remain tight and demand good until early April, after which there’s more uncertainty,” said a Shanghai-based source with a major Asian polyolefin producer.
Markets were slightly spooked by last week’s decision by China to raise the reserve requirement for banks following two inter-bank interest rate rises in the space of a week, the source added.
“These were really the first credit-tightening steps taken since the start of the economic crisis and so it has given everyone cause to pause for breath.
“But nobody is expecting the government to do much more to adjust the economy over the next few months.
“We did see, however, some downward pressure on Yuan prices in the second week of January – a week earlier than we had expected – because of the government steps.
“The focus now is on inventory management ahead of the Chinese New Year (the official holidays this year are from 13-19 February) as nobody wants to get caught with high stocks going into the New Year.
“As for current inventory levels, it’s tight at the first level of distribution (the bonded warehouses) but a bit longer, although not alarmingly high, at the second local level.
“There’s going to be an inevitable slowing down ahead of the New Year, of course, and some softening in prices but nobody is expecting a drastic collapse.”
ICIS pricing assessed PE and PP US dollar prices as stable last week after the early New Year rallies (see graphbelow), supporting the belief that there’s been a pause for breath.
But PE producers were still pushing for higher prices on the grounds that feedstock ethylene and energy costs had increased, again according to ICIS pricing.
Not so according to the 15 January issue of the ICIS Weekly Asian PE Margin Report.
“Integrated low-density PE (LDPE) margins in Northeast Asia rose by $51/tonne (10%), their highest level since May last year,” said the report.
And it added that integrated high-density PE (HDPE) margins also increased by $51/tonne, or 16%, to their best position since September 2009.
Both increases were attributed to a 2% dip in the price of naphtha outweighing a slight decrease in co-product credits and the flat polymer prices we’ve already mentioned.