SINGAPORE (ICIS) – The South East Asia (SE) polyethylene (PE) market is expected to remain under pressure in 2020 as demand growth continues to lag behind regional supply and growing world.
Although the expansion of PE capacity is relatively limited in the Southeast Asia region, the supply of imported PE is expected to increase year over year due to start-up delays in 2019 and a large number of new plant start-ups in 2020.
The 2019 expansions saw approximately 4.5 million tonnes of additional PE volumes, primarily from the United States, while 2020 will see approximately 7.2 million tonnes of additional linear low density polyethylene (LLDPE) grades and high density polyethylene (HDPE).
Asia leads capacity expansions in 2020, with over 4 million tonnes of additional volumes, mainly for LLDPE and HDPE grades from China alone, a huge leap from just expanding 900,000 tonnes of PE in the country in 2019.
The other big of the additional volumes will come from emerging PE export regions such as Russia and Oman with production capacity of around 1.5 million tonnes / year and 880,000 tonnes / year respectively, as it does not there is no planned capacity addition from the United States.
The Southeast Asian market was largely affected by bearish sentiment amid weak demand for finished goods, which could continue to weigh on the market in 2020 as demand growth is not in place. able to catch up with an increase in supply.
ICIS estimates that demand growth for PE in Southeast Asia will average around 5.5% in 2020, although prolonged uncertainty surrounding China-U.S. Trade tension and growing environmental concerns over waste plastics could undermine real demand.
Most processors could refrain from building up their stocks and choose to rely on their contract volumes for their immediate needs if weak market conditions persist in 2020.
Traders and stockists are also likely to take a cautious stance and refrain from engaging in large spot allocations, choosing to keep minimum volumes and ready inventory levels.
Southeast Asian producers, especially naphtha-based PE producers and non-integrated PE producers, are currently struggling with narrow to negative margins, in a weak PE market against naphtha costs and ethylene relatively firm.
Import prices of all grades of PE in Southeast Asia hit new lows in 2019, the lowest levels seen since the 2008 economic crisis against a backdrop of supply pressure, as the prevalence of American materials is shaking up major markets.
Bids for dutiable US origin PE cargoes, especially LLDPE and HDPE cargoes, were consistently about $ 20-50 / tonne lower than other bids from Saudi, Middle Eastern suppliers. and Indians.
Dutiable HDPE prices have fallen significantly throughout the year, converging and eventually falling below LLDPE prices in early December 2019.
The price differential between US-origin and Middle Eastern HDPE shipments has narrowed in recent months amid increasing sales pressure, with some producers in the Middle East matching the prices of US-sourced shipments.
The Vietnamese market is poised to become the largest import market in Asia except China and Indonesia due to its zero tariff policy for PE imports.
PE prices in Vietnam remain significantly lower than other parts of Southeast Asia in 2019, especially for LDPE and HDPE films.
For LLDPE, weak demand and competitive local prices, especially in Indonesia, dampened import demand and suppressed import prices for non-taxable Southeast Asian cargoes.
The price differential between dutiable and non-dutiable LLDPE shipments has narrowed to just $ 25 / tonne CFR Southeast Asia while that of HDPE films remains relatively wide at $ 80 / tonne, according to the report. CIHI data as of December 6, 2019.
The typical price differential between dutiable and non-dutiable PE cargoes in South East Asia normally reflects the import duties involved for the respective grades, but has not been the case in recent years.
Some naphtha producers in Southeast Asia could further reduce their overall operating rates amid shrinking margins if raw material naphtha and ethylene costs remain firm in 2020.
The overall outlook for 2020 remains cautious with some risk of a further downtrend in PE ratings as increasing supply pressure in a saturated market could weigh on sentiment and dampen demand further.
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