Increasing buyer resistance makes it difficult for suppliers to continue raising prices

21-Jan-10

The recent price hikes seen in polyethylenes and polypropylene in South Asia and the Middle East triggered by rising feedstock prices and robust demand are anticipated to fizzle out on buyer resistance, as per ICIS. Market players fear a crash akin to the one seen in H2-2008, if prices continue to rise to unsustainable highs. Processors are finding it difficult to pass their PE and PP costs to customers, as polyolefin prices continue to rise, surging this week by 10% in South Asia and 6.5% in the Middle East. They prefer to wait before large purchases at such high levels that are squeezing margins, in anticipation of softer prices expected shortly. Prices are expected to ease out when China approaches its week long Lunar New Year holidays and supply from the Middle East increases as many new plants ramp up operating rates to around 70-80%, up from the 50-60% seen in H2-2009. At current price levels, traders in India and Pakistan are not keen in taking long positions for fear there would be a price erosion soon. Indian buyers anticipate better supplies following the restart of Haldia Petrochemical's facility in West Bengal. On the supply side, the signals were confusing this week. Market sources in east Mediterranean indicated a possible cut in allocations and further price hikes, especially for PE, due to supply constraints. There is adequate availability in the GCC, despite a power outage in late December, which caused a production disruption in Saudi Arabia.