Asia Daily PP and PE Overview 22 Feb 2017

In China, futures market remains weak with very limited signs of improvement in the coming days amid high inventories levels. May delivery contract settled at CNY104/ton ($15/ton) lower to reach CNY8773/ton ($1088/ton without VAT) while LLDPE contract slipped CNY40/ton ($6/ton) to close at CNY9850/ton ($1222/ton without VAT).

The number of transaction in domestic market remains much weaker than expected, though there are still deals reported. Traders continue to offers another CNY50-100/ton ($7-15/ton) reduction on both PP and PE cargoes to encourage replenishment activities. A player said, “Some of our customers are questing for additional CNY200/ton ($29/ton) discount for parcels to be delivered one month later. The near term outlook appears to be bearish.” Another trader added that they have not completed selling January allocation and at the moment inventories are pilling up.

Meanwhile, many converters in the country are still operating at low rate due to lack of end product orders with a BOPP sheet maker commented, “Our four production lines merely run at all. We have fulfilled most of the end product orders received before the Lunar New Year while new orders have yet to come. With the current stock on hand, we are able to hold fresh purchases for a month.”

In the import market, major Middle Eastern producer slashed PE price to the country by $20/ton from initial price given earlier this week to reach $1190/ton for LLDPE film and $1330/ton for LDPE film amid sluggish demand condition. “Domestic prices fell six straight days, making import cargoes less competitive. We were not able to conclude any deals at the earlier prices.” Even major Thailand producer also reportedly down adjusted their PE offer claiming slow sales process.

Suppliers in the country continue to seek opportunity to re-direct their PP cargoes to Southeast Asia region due to healthier demand and margins. A Chinese producer sold homo-PP yarn at $1135/ton FOB China, LC AS term to Southeast Asian buyer said, “We are also looking to export other grades in the near term.”   

In Southeast Asia, buyers in the PP market are becoming more cautious as re-export cargoes continue to pour into the region at competitive prices while several international producer open prices for direct shipment at up to three digits hike.

In fact, a major Saudi Arabia producer announced March delivery offers to Indonesia and Vietnam at as high as $120/ton increased from last month, reaching $1180-1200/ton CIF, LC AS term. Indonesian buyers are very surprised with such aggressive price decision since demand in the country remains weak. Besides, several non-dutiable cargoes are also offered at similar levels at the moment. A buyer commented, “We think this new offer is too high and market might not be able to accept. Domestic cargoes are still holding more competitive position at the moment. For us, we have replenished sufficient cargoes and in no rush to make fresh purchases.”

Import homo-PP to Southeast Asia is following diverged direction with re-export material witnesses discounts while direct cargoes are firming up. There are so much of uncertainties ahead regarding which direction would market proceed in the near term, especially with the current supply-demand dynamic. Several have pointed to a possibility that PP market is nearing the peak pointing to persistent weak demand across Asia and falling propylene costs. Yet, most only expect small range of downward price adjustment.

In the PE sector, ethylene costs is Northeast Asia region started to come down from the multi year high, however, players are holding firm expectation on the downstream PE market trend. Given a number of production disruption at regional and international plants, PE supply is set to tighten in the coming month. “We believed that there would not be any significant price reduction in PE offers as supply remain insufficient. Most Middle Eastern suppliers are not having large allocation this month,” an international trader commented.

A Vietnamese buyer placed bid for Saudi’s LLDPE film at $1220/ton after receiving fresh offers in the previous session. The source added, “We are not confident to accept new offers nearing to $1300/ton threshold as domestic market see no further improvement. We are waiting for the supplier’s respond.” Players are also reporting difficulties in sourcing LDPE film cargoes at the moment due to several maintenance shutdown schedule that limit availability, “Even Chinese traders are unable to re-export their on hand cargoes due to high costs,” a market source added.