Asian PE producers mull rate cuts on persistently weak demand

Asian PE producers are considering reduction in operating rates in the coming month, as they struggle to achieve acceptable operating margins in the face of persistently stagnant demand that has pushed PE prices lower over the past week even as upstream costs continue to move higher, as per Chemorbis. Over the past month, spot ethylene prices have moved up by US$50/ton on a CFR Northeast Asia basis, while CFR Southeast Asia posted even larger increases of US$145/ton over the same time period. Crude oil prices have also posted considerable increases over the past month, gaining nearly US$10/barrel to reach their highest levels since the summer of 2008. CFR Japan spot naphtha prices moved up along with crude oil prices over the past month, rising around US$70-75/ton to reach levels not seen since the summer of 2008. PE prices have failed to move higher in response to upward pressure from the cost side as demand has remained poor and converters have offered stiff resistance to any attempts to raise prices. According to data from ChemOrbis Price Index, spot LDPE film CFR China prices have lost US$10-20/ton over the past month, spot LLDPE film prices have declined by US$20/ton on the high end of the range over the same period, while HDPE film prices have firmed up US$30/ton on a month over month basis. Spot prices in Southeast Asia have posted even steeper declines, with spot prices on a CIF SEA, cash equivalent basis losing US$55/ton on the upper end of the range for HDPE film, US$100/ton on the upper end for LLDPE film and US$60-90/ton for LDPE film on a month over month basis. The combination of rising upstream costs and falling PE prices has left most PE producers operating at prices well below their theoretical breakeven levels. Even the upper ends of the import HDPE and LLDPE film price ranges in both China and Southeast Asia are at least US$50/ton below producers’ theoretical cost levels based on spot ethylene prices while the lower ends of the HDPE and LLDPE ranges are trading at or even below par with spot ethylene prices. Given their unsatisfactory operating margins, a number of PE producers are said to be considering cutting their operating rates to shore up their position in the market. Major Chinese producer Sinopec is reportedly planning to run a number of its subsidiaries’ PE plants at reduced rates throughout the country in May, with some sources predicting that rate cuts on the part of Chinese producers could reduce domestic PE production by as much as 50,000 tons next month. Some provinces within China are also said to be reintroducing electricity rationing, which could also result in lower operating rates for petrochemical plants in the affected areas. In Indonesia, Chandra Asri reduced rates at its 120,000 tpa HDPE line while maintaining normal rates at its 200,000 tpa HDPE/LLDPE swing plant, which has recently returned to producing LLDPE once again. The company said that they elected to reduce rates at their HDPE line given slower demand while adding that they will consider selling their ethylene feedstock rather than using it for PE production if their operating margins on their PE business do not improve soon. Malaysia’s Titan Petrochemicals was reported to be running its HDPE plants at Pasir Gudang and Tanjung Langsat, which have a combined capacity of 335,000 tpa, at 85% of capacity ahead of the upcoming maintenance shutdown at their petrochemical complex in mid-June.