Falling crude stalls trades in southeast Asia polymer markets

Focus article by Muhamad Fadhil, Angeline Soh and Johanna Truong

SINGAPORE (ICIS)–Trades in southeast Asia’s polyolefins market are being stalled by slumping crude values, which will likely continue dragging polymer prices down, industry sources said on Tuesday.

On 7 November, dutiable polypropylene (PP) flat yarn prices were assessed at $1,470-1,490/tonne CFR (cost and freight) SE (southeast) Asia, down by $10-20/tonne from the previous week, while dutiable high density polyethylene (HDPE) film prices stood at $1,480-1,510/tonne CFR SE Asia, down by $15-20/tonne over the same period, according to ICIS.

PP flat yarn import prices in southeast Asia have shed $50-60/tonne by the week ended 7 November from $1,520-1,600/tonne CFR SE Asia four weeks ago, according to ICIS data.

The downtrend has accelerated since mid-October, when crude prices tumbled and have remained weak amid an oversupplied market. Regional prices have been mirroring sharp declines in the key China market.

PP prices may fall further as producers have recently been offering competitive prices to induce trades, an Indonesian trader said.

“Crude oil prices is the number one reason behind the decline of polymer prices,” a Middle East-based industry source said.

Brent crude futures fell to fresh four-year lows early this month amid concerns over softening demand following release of disappointing data on the Chinese economy. At noon, US crude futures were trading at $77.05/bbl while Brent crude stood at $81.91/bbl, down 35 cents/bbl and 43 cents/bbl, respectively.

HDPE prices, on the other hand, have been falling since late July, according to ICIS data.

PE is seeing an unusual sluggish trade, market sources said, citing that buying activities for the polymer are traditionally strong towards the end of the year.

“It’s typically the peak season in the Philippines, but [Christmas-driven] orders have been fewer as compared with previous years,” said a Philippine-based trader.

Despite the upcoming festive season, further declines are expected due to concerns over the global economy and a lack of recovery signals in China.

“There are a couple of festivals in addition to Christmas in Thailand, such as the Monkey Buffet Festival. But demand has dropped by 20%, and the market [is displaying] no signs of picking up,” said a Thailand-based trader.

Demand for downstream plastic packacing typically increases ahead of the Monkey Buffet Festival, which is celebrated in Thailand in end-November.

Currently, end-users are buying only small volumes to cover immediate requirements as they seek a clearer price direction, a Vietnam-based trader said.

Buying sentiment  in China, which is a major importer of polymers, and southeast Asia  weakened over the course of 2014, with growth rates in China waning to a five-year low of 7.3% in the third quarter.

Weak demand is partly attributed to the depreciation of most southeast Asian currencies against the US dollar in the third quarter, that diminished the region’s purchasing power for imported commodities.

Heavy start-ups of coal-to-olefins and methanol-to-olefins plants in China are also likely to exert downward pressure on polymer prices in this region.

China’s coal-based polyolefins capacity is expected to hit 5.96m tonnes by the end of the year, a sharp surge from 2.16m tonnes/year in 2013 and will account for about a fifth of total polymer production in the country.

Several southeast Asia-based producers raised their concerns about matching the expected lower offers from Chinese suppliers.

“Prices in Vietnam are expected to be weak until January, in tandem with the China market, which is likely to pick up [before] Lunar New Year [in February],” said a Vietnam-based trader.

In the Middle East, increased supply from UAE’s Borouge is expected to exacerbate the supply glut.

Fresh supply from the third phase of Borouge’s expansion (Borouge 3) in Abu Dhabi is expected to hit the markets by end-2014 or early 2015.

Borouge 3 comprises a 1.5m tonne/year ethane cracker and derivative plants, including 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.

ICIS will hold its second Asian Polyolefins Conference in Singapore on 11-12 November.

Read John Richardson’s blog – Asian Chemical Connections