South Asian polyethylene (PE), polypropylene (PP) and polyvinyl chloride (PVC) participants are bracing themselves for further demand destruction in the middle of the year as macroeconomic challenges continue to suppress buying ideas.
In Pakistan, Sri Lanka, Bangladesh and Nepal, national reserves continue to decline as their respective trade balance deficits worsen. Volatile exchange rates have made it difficult for buyers to plan their purchases in advance. Buyers also face difficulties in obtaining credit, with their central banks tightening credit to reduce the outflow of US dollars. Because of this, converters have had to reduce run rates and import less. Sellers to these markets have also been cautious, requiring buyers to have letters of credit with confirmation prior to confirming bookings.
The only bright spot for now remains to be India. Its economy was not as badly hit by recent macroeconomic shocks when compared to the rest of south Asia. Downstream demand has been strong in the first quarter to the middle of the second quarter. But the impending monsoon season, expected to begin in June, is likely to dampen downstream activity. PVC pipe demand will likely be the hardest hit as agricultural activity, which accounts for around 40pc of pipe demand, declines.
There are also further strains on supplies as trading firms are holding on to excess inventories of PE, PP and PVC. Indian buyers have been purchasing these cargoes below open market prices. Domestic producers have had to introduce discounts to match these prices and entice buyers. But this has not been very effective as some producers are starting to see inventory build-ups of PE and PP. Indian producers are now mulling rate cuts to prepare for reduced demand in the months to come.
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