PE prices near costs in Asia: decreasing trend slows down

A downtrend persisted in spot PE prices in Asia this week in the face of persistently poor buying interest. As per Chemorbis, the pace of the decreases has slowed down in general, while a few products saw some slight up-ticks at the low end of the overall range, as PE sellers are beginning to face cost pressure as upstream crude and naphtha prices have firmed up while Asian ethylene prices have declined at a slower rate than PE prices since the beginning of June. Although spot ethylene prices on CFR Northeast Asia basis are down US$60/ton from the beginning of June, theoretical costs calculations based on spot ethylene prices suggest that many producers are operating with low or even negative margins as spot PE prices have declined at a faster rate than ethylene prices this month. According to data from ChemOrbis China Price Index, spot offers for dutiable LLDPE film origins have lost US$90-100/ton since the start of June, while HDPE film offers have declined by US$80-100/ton. Only in the LDPE film market, where prices are down US$50-70/ton from the start of the month, have the declines in PE prices been proportional to the losses in spot ethylene prices. Upstream, crude oil and naphtha prices are trading above their early June levels, suggesting that margins have been eroding even faster for integrated producers. One of the main factors contributing to the steep losses seen in Asia’s PE markets this month has been oversupply concerns, which have been fed both by the imminent start-up of new capacities in Asia and the Middle East and by excess stock levels on the part of Chinese traders. While new capacity issues remain prevalent in the market, particularly after the recent start-up of Sinopec Zhenhai’s new 450,000 tpa HDPE/LLDPE swing plant in China which is expected to start shipping product at the end of this week, traders are reporting some improvement on their own oversupply situation. Having curtailed their purchases from the import market over the past few weeks while actively working to re-export their excess stocks to other markets, traders say that they have made some progress in paring down their excess stock levels, with news of some recent plant shutdowns in Iran also providing some temporary relief to the market’s supply woes. However, players are still concerned about the possibility of attractive deep-sea offers from the US entering the Asian market in large volumes, as softer ethylene prices in the US make it possible for American PE sellers to enter the global markets with very competitive prices.