Having closed June deals with 3-digit drops, European PP and PE players are bracing for further drops next month amid ample supplies and weak demand. Monomer expectations also emerged softer given the growing disparity between spot prices and the contract levels.

Spot monomer prices are 16% below June contract levels

According to ChemOrbis Price Wizard, spot propylene and ethylene prices currently stand 16% below their settlement levels for June at €1600/ton for propylene and at €1595/ton for ethylene.

July monomer expectations emerged €50-60/ton lower for ethylene and propylene. Spot ethylene and propylene prices currently trade at par at around €1370/ton FD NWE after posting slight decreases from early June.

PP players contemplate the gap between monomer contract levels and polymer prices wouldn’t be sustainable as producers lament about tight margins. European PPH was traded at €1600/ton FD level on the low end of the price ranges during June.

March-Apr hikes brought markets to a standstill

European PP and PE prices extended losses into the second month in June. Polyolefin players commented that hefty hikes back in March and April may have led to demand destruction. Prices hit fresh records back then after 3-digit hikes each month pushed PP prices and some PE grades to unforeseen levels.

Sizeable discounts fail to stimulate buying interest

Since converters sit on comfortable stocks, hefty drops failed to boost purchasing activity. Sellers cut their prices further to speed up sales, but to no avail. Some distributors confirmed receiving additional discounts from their suppliers given high stocks and weak demand.

Converters generally stuck to a hand-to-mouth purchasing strategy in order to minimize their risks, citing bearish expectations for July and ample availability for certain grades.

Prices have room for further decreases, with expectations calling for drops of €50-100 for PE and beyond that for PP. Decreases in resin prices are believed to be larger than potential monomer drops given ample polymer availability.

Sellers destock amid thin spot activity

Persistently weak demand triggered price competition among sellers, who felt the pressure from growing stockpiles. There were a number of offers from different origins, with non-European prices putting pressure on regional spot markets. A participant said, “Demand in West European markets is rather weak due to the competitive pressure from Mid-eastern suppliers.”

Although suppliers continued to report short availability from the US due to lingering logistics issues, their absence has been filled by a variety of alternative sources from the Middle East. Export prices out of the US were pressured by weak demand, meanwhile.

US PE offers for July emerged €50/ton below June levels at €1780/ton for LDPE film and €1680/ton for HDPE film, all on DDP, 60 days basis.

LDPE and HDPE b/m under more visible pressure

HDPE b/m and LDPE film grades witnessed a stronger pressure among other products. Some traders even offered HDPE b/m, injection and film grades below the €1600/ton FD threshold by mid-June. LDPE prices touched their lowest levels since February, according to ChemOrbis Price Index. Data also suggested that PPH and PPBC in. markets hit around a 15-month low in June.

Meanwhile, the mLLDPE C6 film market became more balanced after several months of shortage.

Will buyers return to replenish stocks?

Players are curious about to what extent prices will continue to fall as still-high production costs made polymer producers think of rate cuts to rebalance supply levels and preserve their margins.

The vast majority of players find it less likely that converters will return to replenish their stocks ahead of the summer season amid weaker consumer confidence. Rising inflation and overall negative economic sentiment continue to keep end consumption limited. Plus, utility costs moved back up after Russia cut down on gas flows to Europe, which wreaked havoc on manufacturing activities.

That is to say, demand may not recover to an important extent heading into the summer period, when manufacturing plants will undergo planned maintenance shutdowns. Yet, trading activity may gather some momentum only if buyers decide to restock for the post-holiday period, namely September, taking advantage of low resin prices.

(Source: chemorbis)

Turkey’s import polymer markets have remained under the pressure of persistently thin demand as inflationary pressures, which hit end product markets hard across the board, kept resin consumption tied to limited needs.

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

Sentiment for PP fails to firm up

PP prices took a break from the downturn earlier this month as consumers’ return to the market and the narrowing price gap with China bolstered the market to some extent. Buyers opted to buy some volumes to reduce their costs despite the ongoing sluggishness in downstream markets.

Nonetheless, sellers’ hopes for a rebound collapsed in the second half of the month since activity waned once again, succumbing to unpromising end markets, financial concerns, and volatile upstream chains.

Saudi Arabian PPH prices were assessed stable at $1360-1380/ton for raffia and at $1380-1400/ton for fibre and injection, CIF Turkey, subject to 6.5% customs duty this week. Players reported hearing slightly lower prices for Russian cargos in a few cases.

“Demand recovery in Asia has been disrupted by new Covid clusters in China. Moreover, the nearing holidays, weaker monomer expectations, and inflation weigh down on Europe,” said players.

Although the market feels free from supply pressure from China amid unfavorable netbacks and Iranian producers remain absent, there is a slew of factors weighing on the PP outlook.

“PP prices should have hit the bottom normally, but things are not promising. The approaching Eid al-Adha holiday will keep demand subdued as carpet makers mull over temporary shutdowns for a couple of weeks next month. This is mainly because of poor end orders, particularly from the US due to rampant inflation,” a player opined.

Cash constraints and the recently lower crude oil markets are other pressure points. Moreover, Turkey may see more than usual volumes from Europe at competitive prices, where propylene contracts are expected to be lower. Hence, players see losses as likely, particularly if Russian sellers focus more on this market.

Slower packaging demand weighs on HDPE film

Stagnant end markets found a reflection on the PE market throughout June, with producers revealing drops for the second month in a row. According to the weekly average data from ChemOrbis, Middle Eastern offers have sunk to their lowest levels since September 2021.

Packaging converters confirmed slower demand both in the local and export markets for their end products. One of them said, “High inflation and lower running rates on the converters’ side have taken a heavy toll on orders from industrial packaging. We have been focusing on food packaging applications, which have fared a bit better.” A source from a Middle Eastern producer said, “Bans on plastic bags have hit demand across the board for HDPE film grade.”

Besides, lackluster carpet demand from the USA and Europe continued to keep shrink film appetite low in Turkey and dimmed demand for LDPE grades.

PE players voice bearish expectations for July

July expectations have started to be shaped by bearish factors. Most players concur that the resin price has not been the primary issue since buyers have been suffering from stagnant end product orders, tight liquidity, and financial problems, along with elevated utility costs.

Expectations call for a new round of declines given the economic volatility, while plunging oil prices amid recession fears, the nearing Eid al-Adha holiday and approaching summer holidays in Europe are other factors which weigh on projections.

Meanwhile, the material flow from Russia and Europe will remain under close watch as players do not exclude possible pressure from these origins going forward.

An influx of Asian, Russian cargos keeps PVC on a downtrend

In the PVC market, falling consumption amid inflationary pressures continued to take the center stage as June wore on. An influx of Russian and Northeast Asian cargos exacerbated the pressure on sellers. This also mitigated the impact of an unexpected shutdown at the local producer, Petkim, and modest volumes from Europe.

Russian K67 dropped to $1450-1500/ton CIF/FCA for both new shipments and prompt cargos before reaching $1420/ton later this week. Short sales for US K67 added to the scene, with prices at $1400/ton for late August shipments.

Asian suppliers have followed an aggressive policy following a sharp reduction from a Taiwanese major for July. Chinese sellers remained aggressive with K67 prices ranging from $1400/ton to $1500/ton CIF Turkey. The successive falls in Dalian futures and oil prices as well as cautious downstream markets under the shadow of Covid curbs in some cities, weighed on sellers.

Towards the end of the week, South Korean K67 prices sank to $1560-1570/ton, no duty. According to market speculation, Korean prices have reached around $1500/ton, though this has not been confirmed by primary sources.

The outlook appears to be bearish in the coming term as several manufacturers plan to shut their factories for holidays and global PVC markets remain weak across the board.

(Source: chemorbis)

Global PVC prices have been on a downward trajectory since around mid-April, while sentiment has recently turned more bearish particularly in Asia under the light of recent developments.

Among the prominent factors signaling further downfall in prices are weaker commodity demand – ruffled by rampant inflation, rising supplies in major markets, fresh Covid-19 fears in China amid its already brittle economy, the monsoon season in India, and the plunge in energy futures.

Chinese suppliers’ aggressive approach in export outlets including India, Southeast Asia, Turkey and Egypt has already triggered a price competition among main suppliers of PVC. On top of the existing pressure from China , some very aggressive PVC K67 offers from the US have emerged in Asia this week, raising the question of whether the markets are poised to take a deeper dive in the near term.

Prices are down from record highs, but still much above pre-pandemic levels

Will PVC see its pre-pandemic levels ever again? This was the big question in players’ minds when prices hit unprecedented highs in October 2021. Compared to that point, import K67 prices in major markets including India, China, Southeast Asia, and Turkey have lost around 30-40%.

However, there is still a long way for PVC to go back to its pre-pandemic levels, as data show.

ChemOrbis Price Index suggests that the current weekly averages of import K67 prices are standing $350/ton above pre-pandemic levels in India, $265/ton in China, $295/ton in Southeast Asia, and $610/ton in Turkey.

Not China, this time. Plunging US offers take the lead in a nosedive in Asia

On June 21, the major Taiwanese producer announced its July offers to Asia with a $90/ton decrease at $1120/ton CIF China and at $1320/ton CIF India. Following the producer’s price notifications, much lower offers for different origins popped up in the markets.

A few traders in India said that they received competitive Chinese acetylene-based K67 offers at $1200s/ton CFR right after the Taiwanese major’s July announcement. “The Indian market is well supplied amid the continuing flow of competitively-priced Chinese PVC,” they noted.

As the week progressed, even more aggressive offers started to emerge from the US, probably offered from the short-positions of traders. Players reported that US K67 was offered at $1050/ton CIF China and at $1020-1080/ton CIF Vietnam.

A Vietnamese converter said, “US K67 with August delivery has been offered at $1020/ton CIF this week and we heard that a deal was closed for 1000 tons at this level, which is quite competitive.”

Turkey also sees sharper than expected drops in June

Apart from persistently weak demand, there has been a slew of factors paving the way for sharper than anticipated June drops in Turkey. Supplies were palpable, with an influx of import cargoes for various origins exacerbating sales pressure.

Russian PVC cargoes have been a major pressure point since they boosted their market share in Turkey, dethroning Europe and becoming the top PVC supplier in the first four months of 2022. Russian K67-68 with 6.5% customs duty broke below the $1450/ton CIF level late last week, while stocks at warehouses were reported to be plentiful.

Amid stiff competition with the influx of Russian PVC, other origins mainly China, South Korea, Egypt and the US lowered their prices one after another in Turkey in the past couple of months. Even import prices from Europe, where buyers have scrambled to find cargoes, were down by at least 20% in the past three months.

Signs of improved supplies from Europe

It has been almost two years since Turkish buyers received less and less PVC supply from European suppliers due to long-lasting production snarls across the region.

Given the record-high premium Europe carries over the rest of the world and the expected decrease in the next monomer contract, some market players in Turkey opine that European suppliers will be more willing to focus on exports to their main outlet in July, particularly when the slump is set to gain momentum in the rest of the world.

(Source: chemorbis)

PET bottle prices in Asia hit three-and-a-half year highs two weeks ago on the back of cost support and improving export demand. However, prices have started to soften since last week given the falls in upstream markets and weakened spot buying amid fresh Covid fears in China.

As a knee-jerk reaction to the crude oil slump in the last two weeks, MEG, PTA, PX prices in Asia have witnessed visible drops. Compared to two weeks ago, spot prices on CFR China basis are down 13% for paraxylene, 8% for PTA and 4% for MEG.

PET suppliers cut offers for 2nd week

Several PET bottle producers in Asia have reduced their offers by around $10-30/ton to local and export markets for the second week in a row, pointing to lower upstream costs.

“We have cut our offers again due to falling PTA, PX, and MEG prices. Demand from Southeast Asia, Europe, and the US has improved slightly thanks to the summer season but the number of deals is still limited. Buyers are cautious amid the ongoing Russia-Ukraine war as well as the resurgence of Covid fears in China,” a source from a South Korean producer said.

A converter in Malaysia added, “We are in no rush for fresh purchases as prices currently follow a downward trend. The recent flare-up in Covid-19 infections in Beijing and Shanghai has dampened sentiment across Asia.”

All eyes are on the latest oil rebound

Although the regional PET markets continue to be dominated by lower costs and demand concerns this week, players have turned their attention to the latest rebound of oil futures. Brent crude oil futures settled $3.07/barrel higher on Friday and $1.97/barrel higher on Monday.

“The PET market might soon stabilize if the recent gains in crude oil futures push MEG, PTA, and PX prices up. Demand from the US and European markets will also be supportive amid warmer temperatures,” commented a seller in China.

(Source: chemorbis)

May has been a month of moderate drops in Europe’s PVC markets following the longest rising streak. A decline in purchasing activities was cited as the key factor behind the recent softening as several players confirmed that overall consumption is lower despite the high season.

Demand has not been up to seasonal expectations

Sellers had pinned their hopes on a seasonal pickup in demand for certain downstream sectors. However, not only inflated utility costs and resin prices but also cautious consumer behaviour amid war-related uncertainties have kept purchases hand to mouth during May.

According to players, manufacturers of rigid pipes and profiles reported a slight slowdown in their businesses. Small companies in the construction sector opted for postponing or cancelling new projects due to inflated price levels and a lack of other components. Some window profile makers were optimistic amid ongoing renovation works, however.

Meanwhile, the resumption of public works may be stymied by the volatile nature of upstream costs as these projects are based on deferred payment terms. Pipe makers witnessed a slowdown in demand after revising their list prices upwards, as a player put it.

While the footwear sector has been underperforming, players reported patchy demand in the cable sector. Some cable makers in the building sector reported to have regular order entries but those in the automotive sector continued to witness sluggish demand. Cable makers could pass costs onto their customers to some extent at least.

A compounder and a pipe maker reported respective drops of 20% and 30% in their demand this month only.

Converters hold high-cost material in stocks

Manufacturers were eager to liquidate their end product stocks, which were built at inflated levels. They bought less fresh material to produce, while their consumers also keep purchases hand to mouth as it’s possible to see drops in end prices in the near term.

A pipe maker commented, “We can reduce our end prices only slightly if PVC drops in June as our finished materials were manufactured at higher costs. Demand for PVC irrigation pipes is lower from 2021 but it is in line with 2019.”

Weak demand cushions the impact of tightness

Supply restrictions have kept May drops moderate, needless to say. Regional supplies are tight amid scheduled turnarounds as well as force majeures, while supply tightness failed to create a boost for pricing as opposed to previous months. A major market player remarked, “If it were not for tight market conditions, prices would be under a strong pressure.”

Despite limited PVC production and low producer stocks, converters could get their regular volumes or more from certain suppliers. A player said, “Our supplier can give more volumes despite their limited availability. This is a result of low price inquiries.”

As a side note, delivery delays persisted not only from overseas markets but also from landlocked countries due to a lack of truck drivers. Importing material particularly from the US is deemed risky due to delivery delays.

June expectations softer

As ethylene expectations started to emerge softer for June, PVC players moved to the sidelines. Players do not expect large PVC drops, citing tightness and producers’ statements about limited-to-be allocations. Meanwhile, there are some players who expect minor changes in case of a moderate ethylene drop in June.

A player opined, “June calls for further drops but in small sizes unless ethylene plunges.” Ethylene expectations are for €20-30/ton decreases for now, while demand will be pivotal in determining producers’ decision to apply drops in line with the half of ethylene’s outcome or beyond.

(Source: chemorbis)

As a result of Beijing’s stern restrictions to stem the spread of COVID-19, surplus import availability from China has been keeping Indian PP and PE markets bearish, which would likely continue at least for the next couple of months as the monsoon sets in.

Traders also said the bearish trend was also being sustained by the falling value of the Indian currency, the rupee, against the US dollar.

Monsoon shortly ahead depresses markets

Polymer markets, especially PE, PP and PVC, traditionally enter a low-demand season once the annual monsoon rains reach the country around early June.

According to the latest weather reports, the Southwest monsoon, considered a lifeline of India’s agrarian economy, is likely to bring the first showers to India’s southern coast by May 27, five days earlier than the normal onset date.

May and June shipments of Chinese-origin polyolefins continued to be offered to South Asian destinations as there were ample exportable surpluses in China, with the COVID situation there keeping major cities in the country under lockdowns. While COVID numbers in China have fallen from the mid-April levels, traders said authorities in Chinese cities were adopting a cautious policy with regard to the easing of lockdowns, keeping domestic requirements low.

Indian import requirements were low, however, as the monsoon looms large.

Buyers stay away despite low prices

LDPE prices are being quoted in the mid-$1600s/ton CIF, from $1680-1690/ton in end-April, but traders said prices were likely to fall further.

Import prices were mostly in the low-to-mid-$1400s/ton for HDPE and LLDPE film, around the same levels as late last month. “HD and LL prices have held up mostly as a result of turnarounds in Indian PE plants. At least one of the turnarounds expected to end by the end of April has continued and the plant is now slated to be on stream in a couple of weeks,” a Mumbai-based trader said. Once all the plants are back on stream, we may find HD and LL starting to feel some bearish pressure,” he added.

“Chinese PP raffia is currently being quoted at as low as $1200/ton FOB for exports to different destinations, which would mean levels much below $1400/ton CIF India,” an official from an Indian public sector company said.

“But given the monsoon season is around the corner, we think there are unlikely to be too many buyers at even those levels. In a couple of weeks, we may see prices diving from the current levels as the monsoon rains start,” he added.

Rupee depreciation hits imports

Meanwhile, the Indian rupee depreciated 14 paise to 77.69 against the US dollar in the opening trade on Tuesday tracking persistent foreign fund outflows and elevated global crude oil prices. In the previous session, the rupee had settled at an all-time low of 77.55 against the US currency. Foreign exchange traders see the currency breaching the 80 per dollar mark in the near term.
Indian PP traders said some buyers were ignoring import offers as local prices were more competitive than imports. “The strong dollar has made import costs even more prohibitive for buyers. This means sellers have to offer more discounts in order to strike deals,” a trader with a major domestic producer said.

(Source: chemorbis)

China has been battling its most widespread outbreak since the initial peak of the pandemic in early 2020. With nearly 25 million residents confined to their homes, the lockdown in the country’s biggest city Shanghai is once again threatening to disrupt global supply chains with further delays, logjams and higher freight rates.

Port operations affected by harsh Covid-19 measures in Shanghai

What was initially a two-stage lockdown, due to end on April 5, has rapidly turned into an indefinite citywide shutdown in Shanghai. Although the port and terminal operations in the city have remained functional, severely limited trucking availability has impeded clearance of import cargoes.

A commentary from the Ocean Network Express, a global container shipping company, indicated “operational constraints” in Shanghai’s Yangshan and Waigaoqiao ports, largely as a result of a shortage of trucks to haul containers. The company also said that around 10% of the global container-ship fleet has been gridlocked amid congestion at Chinese and global ports.

Some industry experts claimed Yangshan ports are operating at only 50% capacity and backlogs of ships are growing not only in Shanghai, but also in alternate ports like Ningbo.

Maersk, another global logistics and shipping giant, also said in an insight released last week that warehouses in the lockdown area were seriously impacted. The company warned that the efficiency of their trucking services from or to Shanghai would be further impacted due to the lockdown.

Weakness in demand outweighs reduced run rates, tighter supply

The prolonged lockdowns and ensuing logistics challenges have inevitably resulted in weaker demand across Chinese polymers markets. Market players reported reduced demand for nearly all key polyolefin grades during the week ending April 8, despite limited import supplies and lower production rates at regional plants.

A Chinese trader said, “Shanghai port is affected by the extended lockdowns and not able to operate normally. Many cargoes are being moved from Shanghai to Ningbo port or some other ports nearby. Demand was already weak before the latest covid-19 measures, which are getting stricter day after day, and now demand concerns have become more serious. Logistics is slow too, hindering business activity.”

Tightening supplies and a lack of competitive import offers remained a catalyst for flat pricing in Chinese PE markets last week, despite poor demand. “Import supply remains tight but demand is weak due to lockdowns in major trade hubs, including Shanghai.

Import market is largely balanced by low supply and weak demand,” a trader said, adding that sellers in China were exporting or re-exporting to ease increasing sales pressure.

Supply pressure persists in China despite run rate cuts

This pressure was evidenced by combined polyolefin inventories from two major producers. As of April 11, inventories stood at 940,000 tons.

PP sellers were likewise focused on export outlets to sell material at better netbacks than in the domestic market.

Initial reports from this week have shown that the softening has remained in place. A PP trader offered Saudi origin raffia at $1200-1220/ton CIF China and $1280-1300/ton FOB China said, “PP prices have continued to soften this week. Import offers to China have remained limited while export of Chinese PP is expected to speed up after last week’s holiday if port operations and shippings are not hindered. Still, there is the Ramadan festival in some Southeast Asia countries, which is likely to put a dent in demand across Asia. We think the PP outlook is more bearish than PE.”

Exports and re-exports from China take a knock, too

Just like many Asian PP, PE producers , the ones inside China have also cut their run rates to cope with the cost pressure and ample supply levels at home. Despite this, the supply pressure has remained, as logistics and transportation issues have made exporting, which has become suppliers’ way out for better netbacks, even harder recently.

“Transportation activity is at a standstill due to the latest coronavirus lockdowns in Shanghai while demand is also severely affected. The operating rates of producers are at a record low due to the lingering cost pressure, which offsets the impact of poor demand to some extent,” the PP trader added.

Global buyers do not rush for Chinese cargoes despite competitive prices

A trader in Vietnam, which has been one of the most preferred destinations of Chinese suppliers, underlined that shipments from China are still problematic.

“Although Chinese origin cargoes have been offering a more competitive edge compared to others, buyers are still concerned about delayed shipments due to the lack of ships and containers when it comes to source from China. Nowadays they are also battling with the latest covid-19 wave, which is hindering transportation and logistics including port operations.”

There are also widespread concerns about waning consumer demand as a result of inflation across the board. Unlike these times last year, demand is no longer booming and buyers are extremely careful about their purchases particularly from long distances.

(Source: chemorbis)

April hikes carried European PS and ABS markets to unprecedented levels as the rally gained momentum amid surging costs, while Asian markets were softer under the shadow of weak demand. Since Europe has been trading well above global markets, particularly Asia, the disparity between the two regions has grown big enough to set a new record.

European markets shattered by massive hikes

Having reversed course as of March, PS and ABS markets in Europe extended gains into the second month in April. Regional producers approached the market with increases of around €400-450/ton in most cases, with the bulk of the increase coming from higher styrene settlement. Suppliers also implemented energy surcharges, which varied in size from producer to producer, on top of the cost pass-through from feedstock settlements.

Accordingly, both PS and ABS prices hit fresh record highs as they surpassed their previous peaks seen respectively in May 2021 and January 2022.

Strong costs support sellers despite murky demand outlook

Sellers are staying adamant at their current price levels despite approaching Easter holidays. A few domestic producers reported that they have been selling their monthly allocations faster than expected. They attributed this to the shorter working month as well as surging spot styrene prices amid tightness.

Trinseo declared force majeure on its styrene supplies from Terneuzen, while another regional producer was also reportedly facing production issues. As a side note, a styrenics producer reportedly reduced its PS allocations due to tight styrene supply and soaring production costs.

Indeed, ChemOrbis data revealed that spot styrene prices on FOB NWE basis posted a cumulative hike of around $530/ton from three weeks ago.

A few producer sources said, “We are selling smoothly as opposed to earlier expectations, while previously booked cargoes saw no cancellations. Being aware of the styrene tightness and rapid hikes in spot prices, large-scaled buyers accepted paying April hikes.

Nonetheless, it is true that April sales volumes will be much lower than March due to inflated levels.”

On the demand front, however, a rather cautious purchasing activity was observed on the side of small and medium sized enterprises (SMEs) as well as distributors, who do back-to-back business. They were shattered by the extent of fresh hikes on top of up to 3-digit increases in March as they have already been grappling with rising utility costs amid high inflation. PS demand continued to outperform ABS, meanwhile.

Weak demand reigns Asia’s styrenics markets

Asian styrenics markets, meanwhile, started April on a stable to slightly softer note amid a lack of support from the demand side.

Import PS prices in China and Southeast Asia have plateaued in the past three weeks after following an upward trend since early February. This was because persistently weak demand was counterbalanced by slightly firmer styrene and low availability resulting from reduced run rates.

The extended lockdowns in Shanghai have had a dire impact on logistical operations and purchasing activity. Downstream industries felt no urge to purchase due to the bleak demand outlook amid surging COVID cases in China.

Although slower container circulation curbed the import flow to Southeast Asia and kept supplies limited, downstream demand was not strong enough to push prices up. On the contrary, lockdowns in China and macroeconomic pressures keep buyers on their toes.

When it comes to ABS, China’s import prices declined by $70-80/ton as a lack of demand took precedence over tight supplies. Low local ABS prices in China also halted demand for import cargoes, also pushing suppliers to reduce their offers to the country.

The surge of COVID cases is not abating in major industrial hubs of China, which in turn curbed demand further. Import prices in China stood below those in Southeast Asia due to weaker demand, meanwhile. Whether the warmer weather conditions will prop up demand for refrigerators or air conditioners will also be closely watched.

In Southeast Asia, meanwhile, import ABS prices were propped up by supply constraints emanating from lower run rates and logistics issues, despite weaker China markets.

Delta between Asia and Europe widens further

As a result, Europe’s premium over China and Southeast Asia grew further to hit record highs, making Europe a preferred destination for exports.

Data from ChemOrbis Price Index suggest that the premium Northwest Europe carries over China and Southeast Asia’s import ABS inj. markets has grown notably. European prices currently show a premium of $1785/ton to prices in China, while the premium against Southeast Asian prices is currently at $1670/ton.

Europe’s GPPS and HIPS extrusion markets stand roughly $1100-1200/ton above China’s import GPPS and HIPS injection markets, meanwhile.

At this point, logistics operations will be a key determinant in terms of resumption of imports from Asia as the arbitrage window is wide open. Sky-high freight rates, equipment shortages as well as long lead times have so far eliminated arbitrage opportunities despite deepening disparity between Europe and Asia.

(Source: chemorbis)

Many Asian PP and PE producers have either cut or considered lowering their operating rates recently as multi-year high spot naphtha and olefins prices have wrecked margins. Spot ethylene and propylene are currently priced at or even above some PP and PE prices across Asia.

Secco, Shouguang Luqing PC, Sinopec Zhongke (ZGRPCL – KPC JV), Sinochem Quanzhou, Fujian Ref & Petrochemical (FREP), LCY Chemical Corp.,Sinopec Shanghai Petrochemical, ZRCC, Sinopec Maoming PC, Tangshan Risun Chem, Anhui Jiaxi New Materials Technology Co Ltd, Zhong’an Coal Chem. are among some of the producers that have already cut their run rates in China.

Not only producers in China, but also some major producers in Malaysia and Thailand have cut their run rates by 20-30%.

PE

Taking the recent ethylene prices at $1360/ton CFR NEA – which is the highest of more than three years – into account and adding a conversion cost of $200/ton on top of it, the theoretical production cost of PE comes to around $1560/ton, not including sellers’ margins.

Meanwhile, local HDPE and LLDPE prices in China are currently standing at CNY9,400-9,600/ton and CNY9,100-9,500/ton ex-warehouse, cash inc 13% VAT. They come to around $1286-1300/ton and $1245-1295/ton respectively, not inc VAT, suggesting a huge gap of around $300/ton.

In the import market, the highest HDPE and LLDPE prices reported this week are at $1300-1350/ton CFR China, standing below the spot ethylene prices.

PP

In the case of PP, the theoretical production cost corresponds to $1460/ton CFR NEA after adding an estimated conversion cost of $200/ton on top to the current propylene prices, which are at $1260/ton CFR NEA, highest since October 2014.

Therefore, PP is under a much heavier strain as the highest import homo PP raffia price reported this week in China is at $1230/ton CIF. In the local market, homo PP raffia and injection prices are reported at CNY8,900-9400/ton ex-warehouse, cash inc VAT, which come to $1217-1294/ton without VAT.

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Reduced run rates to lead to tightness over near term

Market players speculated that suppliers’ strategy to bear with the high feedstock costs will lead to supply tightness over the near term.

“Crude oil prices have risen significantly, driving propane and propylene prices higher. Many PP plants, particularly naphtha-based and PDH plants are either reducing run rates or undergoing turnarounds. We think more plants will follow suit in the upcoming days and supply will be limited,” a PP trader in China said.

A seller said, “Both naphtha and olefins prices have increased sharply, pushing some producers to reduce production rates. We think supply will tighten further as a result of this strategy pursued by suppliers.”

(Source: Chemorbis)