Polyolefin trade flows in 2008 show vulnerability of European producers over the next few years on rising pressure from Middle East imports

29-Mar-10

Volume of trade in Western Europe (intra-regional plus imports) for all grades of polyolefins and polyvinyl chloride (PVC) fell by between 3% and 18% in 2009 as per ICIS. Interestingly, at the same time, imports from the Middle East actually increased. A slowdown of imports into China seems inevitable this year after the staggering increases seen in 2009. Low-density polyethylene (LDPE) imports rose by 90% over the previous year to 1.34 mln tons and polypropylene shipments were up by 49% at 4.2 mln tons. Reduction in government stimulus, new capacities coming onstream in China and the difficulty in repeating the sheer size of imports in 2009 points to a slowdown in 2010. Though importswill not fall back to 2007-08 levels, will still be high in 2010, but not as high as in 2009. So the Middle East producers, as they ramp-up capacity this year and in 2011, will be searching for other destinations to compensate for a dip in demand from China. Europe is an obvious port of call. The new Middle East plants will run at close to the optimum rate of 93%, regardless of market conditions, because of their feedstock advantages. ICIS pricing's report shows that in the five years from 2008 to 2012, around 29 mln tpa of new ethylene capacity will be added. Nearly 16 mln tpa will be added in the Middle East and around 14 mln tpa in Asia, of which China accounts for nearly 7 mln tpa of new capacity. This has partly been offset by the 2 mln tpa that has closed in North America. Ethylene demand actually fell in 2008, as economies crashed and extensive de-stocking took place throughout the value chains. In 2009, demand recovery has been weak. In normal market conditions, a rule of thumb indicates that ethylene demand globally grows at 5 mln tpa.