Asia Polymers: Prices fall as supplies rise but feedstock lends support

Author Yee Ying Ang, Senior Market Reporter

Asian polymers prices have recovered gradually over the past year after falling to a more than 10-year low in April 2020 when Covid-19 first hit commercial activity and the global economy.

Plant maintenance, production disruptions and resilient demand have continuously lifted Asian polymers prices since the start of Covid-19 pandemic. But when a gradual supply recovery and record-high polymers prices met issues of stalling demand growth, polymers prices quickly saw a downturn in this year’s second quarter.

Commodity polyethylene (PE) and polypropylene (PP) grades in early April 2021 showed an average increase of $650/t and $635/t respectively or 94pc for both grades from a year earlier. But prices of all grades fell after peaking in April 2021 as global polymers supplies normalized, while rising new production capacity continued to add pressure.

Asian LLDPE prices fall as supplies normalize
Asian LLDPE prices fall as supplies normalize

Asian PP prices fall as supplies normalize
Asian PP prices fall as supplies normalize

Higher US PE and PP production occurred in April after the gradual restart of polymers plants following disruptions caused by a February winter storm. This quickly reduced Asian polymers exports to the Americas and increased supply availability for the region, which led to price falls.

Weaker polymers prices in China and subdued import demand also reduced southeast Asian exports to China and subsequently increased supplies for regional converters. A wide arbitrage led to a rapid rise in China’s PP exports to other Asian markets, in the wake of a huge expansion of China’s PP capacity since late 2020.

Southeast Asia year-to-date (YTD) April exports to China fell by 39pc against a year earlier
Southeast Asia year-to-date (YTD) April exports to China fell by 39pc against a year earlier

Southeast Asia YTD April PP exports to China fell by 29pc against a year earlier
Southeast Asia YTD April PP exports to China fell by 29pc against a year earlier

China’s main PP export destinations in 1H 2021 

China’s main PP export destinations in 1H 2021

Polymer trade flows are typically dictated by supply and demand factors. But continued tightness and uncertainty in container freight availability and the resultant risk of higher freight costs pushed producers to prioritize routes with higher container availability.

The continuing freight tightness could cause delays in shipment departures from several weeks to more than a month. Producers faced risks of an upwards revision in freight costs every two weeks to a month, which indirectly reduced their sales netbacks for exports done on a cfr basis.

Asian producers reduced polymer exports to the Americas and Europe since April when prices began to soften. This left little incentive for exports to these regions after factoring in higher freight costs, trapping any supply surplus within Asia. This contributed to an uneven global market balance and trade regionalization is expected to continue for longer.

Polymer buyers worldwide also minimized long-haul imports with a price downturn and uncertain demand outlook. Freight constraints and heavy congestion at transshipment ports posed for buyers in making losses for late deliveries, putting aside expected long lead times.

Polymer freight rates treble and quadruple in nearly a year
Polymer freight rates treble and quadruple in nearly a year

Feedstock prices have stayed firm in this year’s second quarter despite falls in the derivative PE and PP markets. Prices of naphtha, the main feedstock used by Asian petrochemicals producers, rose gradually in the first half of this year along with a recovery in upstream crude prices. Naphtha prices were at $684/t cfr Japan in mid-July, having increased by more than $100/t since the start of April this year.

The spread between linear low-density polyethylene (LLDPE) and naphtha prices fell to $350/t in late June, down by around $270/t since early April and squeezed margins of PE producers.

Prices of monomers ethylene and propylene were also firm from April to mid-May, which directly reduced margins of producers owning standalone polymers plants. But monomers prices later fell from the end of May with expectations of rising supplies from new production capacity in China and South Korea, prior to a rebound in late June.

Asian polymers producers saw margins gradually thinned when weaker demand met higher feedstock and freight costs. This likely slowed the pace of falls in polymer prices to some extent in June when producers tried to hold prices and defend their margins.

It remains to be seen if persistently lower margins and weaker demand will lead to more producers reducing production. But most producers started raising PE and PP export offers in July because of firmer feedstock prices and slight expectations of tightening supplies for selected polymer grades with planned and unplanned maintenance.

Naphtha prices rise alongside crude futures
Naphtha prices rise alongside crude futures  

Asian PE-ethylene price spreads narrow in 2Q, squeezing PE margins 

Asian PE-ethylene price spreads narrow in 2Q, squeezing PE margins

Asian PP-propylene price spreads narrow in 2Q, squeezing PP margins
Asian PP-propylene price spreads narrow in 2Q, squeezing PP margins

Demand for PE and PP across Asian was weak in this year’s second quarter because of a combination of several factors including need-based buying on a price downturn, peaking Covid-19 cases and supply chain disruptions.

New waves of Covid-19 in southeast Asia and south Asia led to renewed lockdowns in most countries, which affected the manufacturing and services sectors when commercial activity slowed. Downstream converters in India and southeast Asia reduced operating rates at their factories because of manpower capacity restrictions and reduced demand for finished products, which subsequently reduced demand for raw resins.

India’s manufacturing purchasing managers’ index (PMI) fell to 48.1 in June, which showed the first contraction and lowest level since July 2020. A reading above 50 indicates economic expansion. The Asean manufacturing sector contracted in June with its PMI at 49.0 in June. The Asean manufacturing PMI hit a near seven-year high in April 2021 at 51.9.

China’s limited container freight availability continued to threaten export demand for finished goods. Downstream converters in China continued to restock on as-needed basis. But it remains to be seen if seasonal demand in the third quarter will move forward with converters expecting continuing supply chain disruptions.

China manufacturing PMI

Period PMI Sub-indexes
Production New orders Raw material inventory Employee Supplier delivery time
Jun-20 50.9 53.9 51.4 47.6 49.1 50.5
Jul-20 51.1 54.0 51.7 47.9 49.3 50.4
Aug-20 51.0 53.5 52.0 47.3 49.4 50.4
Sep-20 51.5 54.0 52.8 48.5 49.6 50.7
Oct-20 51.4 53.9 52.8 48.0 49.3 50.6
Nov-20 52.1 54.7 53.9 48.6 49.5 50.1
Dec-20 51.9 54.2 53.6 48.6 49.6 49.9
Jan-21 51.3 53.5 52.3 49.0 48.4 48.8
Feb-21 50.6 51.9 51.5 47.7 48.1 47.9
Mar-21 51.9 53.9 53.6 48.4 50.1 50.0
Apr-21 51.1 52.2 52.0 48.3 49.6 48.7
May-21 51.0 52.7 51.3 47.7 48.9 47.6
Jun-21 50.9 51.9 51.5 48.0 49.2 47.9

Source: NBS

Asian PE and PP prices began falling in this year’s second quarter as global production issues subsided and as more new plants in China started commercial operations, increasing supplies. Overcapacity issues continued to loom in both markets, with demand expected to continue lagging supplies because of weaker economic growth during the pandemic.

China is expected to add new production capacity totaling 5.8mn t/yr of PE and 5.2mn t/yr of PP in 2021. Approximately 21pc and 44pc of the new PE and PP capacities expected in China this year have started up in the first half. South Korea, India, Malaysia and Vietnam are also expected to add new capacities totaling 4.3mn t/yr of PE and 3mn t/yr of PP by the end of 2021.

But the start-ups of some plants may slip from the projected timeline because of Covid-19 restrictions, which may slow the arrival of local or foreign manpower for plant construction and commissioning, financial issues and other factors. The delay in start-ups of some new plants has to some extent supported PE and PP prices in Asia in this year’s first half.

New PE plants in Asia expected in 2H 2021

Plant Location Grade Capacity ’000t/yr
Shandong Shouguang Luqing Petrochemical China HDPE 350
Shandong Shouguang Luqing Petrochemical China LLDPE 400
PetroChina Changqing Petrochemical China HDPE 400
PetroChina Changqing Petrochemical China LLDPE/HDPE 400
Sinopec-SK Wuhan Petrochemical China HDPE 300
Zhejiang Petrochemical China HDPE 350
Zhejiang Petrochemical China LLDPE/HDPE 450
Zhejiang Petrochemical China LDPE 400
Zhejiang Petrochemical China LDPE/EVA 300
PetroChina Tarim Oilfield China HDPE 300
PetroChina Tarim Oilfield China LLDPE/HDPE 300
Qinghai Damei China LLDPE/HDPE 300
Tianjin Bohua China LLDPE/HDPE 300
GS Caltex South Korea HDPE 500
LG Chem South Korea HDPE 200
LG Chem South Korea LLDPE 300
LG Chem South Korea LLDPE 300
Hyundai Chemical South Korea HDPE 500
Hyundai Chemical South Korea LDPE/EVA 300
HPCL-Mittal Energy Limited India LLDPE/HDPE 800
HPCL-Mittal Energy Limited India HDPE 450
PRefChem Malaysia LLDPE/HDPE 350
PRefChem Malaysia HDPE 400

Source: Argus Media


New PP plants in Asia expected in 2H 2021

Plant Location Grade Capacity ’000t/yr
PetroChina Liaoyang China PP 300
Shandong Shouguang Luqing Petrochemical China PP 340
Jinneng Technology China PP 450
Gulei Refinery China PP 350
Zhejiang Petrochemical China PP 450
Zhejiang Petrochemical China PP 450
Tianjin Bohua China PP 300
Shandong Huifeng Haiyi Petrochemical China PP 150
Huating Zhongxu Coal Chemical China PP 160
Hyundai Chemical South Korea PP 500
HPCL-Mittal Energy Limited India PP 500
Hyosung Vietnam Vietnam PP 300
PRefChem Malaysia PP 900

Source: Argus Media


Author: Yee Ying Ang, Senior Market Reporter

Yee Ying is a Singapore-based polymers and petrochemicals reporter with a focus on southeast Asian markets.

For more information about our petrochemical services, click here.

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