Polyethylene focus

Middle East focus

Regionally, PE producers are currently increasing capacity at an unprecedented rate, these increases in capacity will greatly magnify the supply significance of a region that already enjoys an unparalleled cost advantage.

"The PE market in the Middle East isn't much different now than in the past. Significant surplus capacity versus demand with the majority of product destined to export and not for the local market," says Pat Rooney, Dubai-based managing director at US petrochemicals consultant Chemical Markets Associates Incorporated (CMAI).

Total installed PE capacity in the region is projected to reach 18% of global capacity by 2012. This increased production from highly competitive units will have a strong impact on global supply, demand, and trade. "There certainly is a lot starting up in the Middle East, and at a time when demand has weakened markedly. However the region is extremely competitive, so it should be others who feel the pressure first", says Alastair Hensman, senior consultant at Nexant ChemSystems.

"The period 2007-12 will be one of major regional capacity increases for high-density polyethylene (HDPE), with increases exceeding those for LLDPE" he adds.

Producers in the region are establishing new plants using the latest technologies, "These plants are world class and use the latest technologies which is the case of the Saudi ethylene and polyethylene company (SEPC), a joint venture between Lyondellbasell and Saudi Tasnee" says Mitchel Killen, Lyondellbasell Divisional vice president for Africa, Middle East and the Indian subcontinent.

Major PE producers in the Middle East include Saudi Basic Industries Corp (SABIC), Saudi Polyolefins Co.

Supply and Demand

With new capacities coming from the Middle East Region, marginal producers in other parts of the world will be obliged to shutdown their units.

"Currently supply is more than demand, marginal producers in Asia and Pacific as well as other regions won't have much profit margin, and we expect to see shut downs of production units as a result in regions outside the Middle East" says Rooney.

The same view is shared by Allawi who says: "We face a wave of new capacities coming onstream from 2009 onwards leading to a decline in industry operating rates. Having said that, the financial meltdown seemed to delay many of the announced projects. The net effect of this on the supply and demand side of PE is therefore less severe than might have been anticipated."

In Europe, producers are adjusting their operation rates to the demand. "We are adjusting the operating rate to the demand in Europe" says Roudex, without giving further details.

The financial crisis has affected the demand side. "Demand was expected to be good, but the financial crisis and freezing of credit markets severely dented confidence markets globally. With low confidence and falling prices, polymer demand has been impacted," adds Allawi.

Prices trend

With several new players emerging in the Middle East, thanks to its low-cost feedstock advantage, price volatility was inevitable. In 2008, PE prices have seen high volatility, reaching the highest and the lowest level.

In 2009, the unfolding global economic downturn coupled with surplus supply exerted downward pressure on prices, but in recent weeks, PE prices have surpassed the level of $1000 per tonne for the first time in six months.

"We see growing demand from converters in the region, mainly from non durable goods sectors like packaging" says Rooney.This growth in demand had a positive effect on the prices.

The global market will be characterised in the short term by very weak demand growth in developed economies. Increased production capability within Asia will reduce the proportion of regional polyethylene consumption supplied by imported product, and force Gulf producers to widen their market footprint. Operating rates are expected to fall considerably in 2009 compared to 2008 according Nexant Chemsystems. However, the competitive advantage enjoyed by Gulf producers will ensure that new markets can be found to absorb the extra volume due to flow out of the region.

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