Southeast Asian PP prices firm on tighter supplies

Southeast Asian polypropylene (PP) supplies are expected to tighten in February, with more planned and unplanned shutdowns intensifying the supply tightness in the key Indonesian market. This could raise PP prices in other countries should producers focus on exports to Indonesia for better netbacks, tightening availability for other regional buyers. Indonesia imported more than 50pc of the PP supplies it consumed last year.

Southeast Asian PP prices rebounded in mid-January when producers began raising offers because of higher feedstock costs and export freight rates. Buying interest firmed when prices were trending higher, especially among Indonesian converters that needed imports to cover the supply shortfall in the domestic market.

PP supplies in southeast Asia will tighten in February because of planned and unplanned shutdowns among regional producers. Indonesia's Polytama is expected to shut its 300,000 t/yr PP plant for a month-long maintenance from mid-February. Thailand's IRPC is expected to shut its PP units from mid-February to the end of March for maintenance but on a rotating basis, with each unit expected to be shut for around a week. IRPC operates a 775,000 t/yr PP plant in Rayong.

Vietnamese refiner and petrochemical producer Nghi Son Refinery and Petrochemical will likely shut its 200,000 b/d refinery from mid-February to March because of financial issues. The producer is also expected to shut its 370,000 t/yr PP plant for the same duration because of expected feedstock shortages, with some buyers already expecting reduced exports from the producer in February. Hyosung, the newest PP producer in Vietnam, could possibly shut its new upstream 600,000 t/yr propane dehydrogenation (PDH) unit from mid-February for a month-long maintenance because of technical issues. The producer started up its new PDH unit late August 2021 but intermittently shut the unit in the late fourth quarter because of technical issues. Its two downstream 300,000 t/yr PP units likely ran at reduced rates in January because of feedstock shortages and could continue operating at reduced rates in February for the same reason.

Thailand's SCG is expected to shut its 140,000 t/yr PP unit for two-week maintenance in April or May, with it expected to limit export offers in late February to March to manage its inventories ahead of the planned shutdown.

Malaysia's Lotte Titan is expected to shut its fluidized naphtha cracker from mid-February for a two-month maintenance. The cracker produces 93,000 t/yr of ethylene and 127,000 t/yr of propylene. Its 640,000 t/yr PP plant is expected to operate at around 80pc for the same period because of feedstock shortages.

Freight issues offset availability

The large-scale PP capacity additions in China and South Korea during 2020-21 have allowed southeast Asian converters to seek supplies from northeast Asia whenever regional supplies tightens or as cheaper alternatives.

But the sharp gains in freight rates for Chinese PP exports to southeast Asia since late November 2021 have slowed export to the region because of a less favorable arbitrage. This, coupled with risks of erratic shipping restrictions associated with China's strict zero Covid-19 policy, have constrained Chinese exports to southeast Asia since late 2020.

While South Korea-origin PP supplies remained available for southeast Asian buyers in January, some market participants fear reduced offers from South Korea with some cracker operators cutting operating rates because of unfavorable production margins. LG Chem, Hanwha Total and KPIC have reduced cracker operating rates to 80-90pc.

Higher feedstock costs and container freight rates boosted PP prices in January this year, with producers raising offers to defend their margins if not opting to reduce PP production.

Average Asian naphtha prices were $766/t cfr Japan in January, up by $63/t from December.

The latest rise in South Korea's export freight rates to southeast Asia also led to higher export offers. South Korean freight rates to southeast Asian countries increased by $40-50/t in January compared with December 2021.

Downstream demand for finished goods remained stable with southeast Asian countries adopting a more relaxed approach towards curbing the spread of the Covid-19 Omicron variant as they achieve higher vaccination rates.

PP demand is unlikely to grow significantly with converters still struggling with consumers' weaker demand, high export freight rates and other supply and manpower constraints that have prevented higher operating rates.

But the coinciding timing of plant shutdowns have raised regional PP prices this week, with prices expected to rise further heading into February.

Argus assessed duty-free and dutiable PP raffia prices at $1,350-1,380/t and $1,250-1,280/t cfr southeast Asia respectively on 28 January, up by $50-95/t from two weeks ago.

By Yee Ying Ang

Southeast Asia PP prices ($/t)