Higher freight rates from Middle East to Europe to add pressure on Asian polyolefins

10-Aug-10

Usually around 30% of Middle East polyolefins move to Europe from the Middle East. Higher freight rates from Middle East to Europe is adding pressure to Asia’s polyolefin industry while leading to tightness in European polyolefin markets, as per ICIS. Increased freight rates resulting from a shortage of container-ship capacity, are likely to last for the next couple of years, exerting downward pressure on FOB prices. Current further manufacturing industry weakness in Europe means container space is more likely to have to be moved to the Middle East empty to collect polyolefins. The outlook for European polyolefin demand remains at best uncertain, but supply has long been tight and remains so. Limited polyethylene (PE) and polypropylene (PP) supply was the result of deep operating rate cuts at the start of the 2008 financial crisis, followed by the rapid Chinese economic recovery which enabled Europe to export significant volumes. European polyolefin exports to China have since fallen due to displacement by new Middle East and Chinese capacity. But supply in Europe is tight because of continued operating-rate discipline and the high freight rates that are discouraging buyers from acquiring Middle East material. European PE prices are US$300/ton above those in Asia, are not yet attracting Middle East shipments.