Buyers in Egypt have been caught unawares this week at the large increases seen in PE offers for February despite the fact that prices have started to catch up with the Asian market after lagging behind levels that would have created a balanced market, as per Chemorbis. Considering that freight rates from the Middle East to China are almost same as from the Middle East to Egypt, particularly from Saudi Arabia, producers from the Middle East would want to sell to Egypt at least at equivalent levels in order to pocket the same netback. In fact, China could be expected to receive a discount in comparison to Egypt due to its massive purchasing volumes. Nevertheless, assuming at least equivalent prices in the two countries, it has been clear for the past couple of months that Middle Eastern producers were pocketing less in Egypt than they could obtain in other markets creating an imbalanced market situation.
Looking back to the prevailing PE prices in China at the start of January, it was clear that Egypt was trailing behind. Mainstream LDPE offers to China rose to a level of US$1580-1650/ton CFR China, cash by the first week of the month, while offers to Egypt were at US$1345/ton CIF, cash equivalent basis. LLDPE showed a similar large imbalance because of the extreme tightness of this product in Asia which led to higher prices for the product. Prevailing offers to China at the start of the year were at US$1430-1500/ton, while in Egypt, Middle Eastern producers made their initial offers at US$1245-1325/ton CIF, cash equivalent basis. HDPE prices were not as strong due to the ample supplies and low demand and were seen in a wide range of US$1270-1410/ton CFR China at the beginning of January, although offers below US$1350/ton dropped off by the second week of the month. In Egypt, prices were announced at US$1265-1315/ton, with a smaller gap compared to China in comparison to the other PE products.
PE offers for December revealed a similar pattern with LDPE offers to Egypt approximately US$100-200/ton behind China, LLDPE offers to Egypt around US$70-180/ton below China and HDPE balanced between the two countries. With two months of trailing prices and unfavorable netbacks to Egypt while for February, producers are attempting to stay firm on their offers to China amidst high costs, it is no surprise that large increases were seen on offers to Egypt for this month. Middle Eastern LDPE film offers to Egypt are now US$130-190/ton above recent January offers in the country, HDPE film offers are US$80-90/ton higher and LLDPE film offers are US$100-120/ton higher compared to the most recent offers. In some cases the increase amounts are greater when compared to initial January offers since some producers took the unusual move of adjusting prices higher in the middle of the month due to limited supplies. Converters in Egypt comment that as it is traditionally the low season in December and January they expect the slow demand conditions to dictate prices. However, the voracious appetite from China displayed in the last quarter of 2009 and the beginning of 2010 combined with extensive outages in the Middle East and a long list of cracker shutdowns in Asia coming up, the real driver of prices has been China and high ethylene costs.