| A decline in consumption of polyethylene (PE) and polypropylene (PP) in China in 2008 has rebounded at a healthy pace in 2009. This is apparent from import figures for 2009 vs 2008 levels - HDPE imports in H1-09 were almost 90 % higher, other PE imports were higher by about 50-60%, PP imports were about 50% higher. Total import of PE in H1-09 was 3.75 mln tons as compared to 4 mln tons for the entire 2008. Demand of PE & PP was supported by increased domestic requirement driven by new economic stimulus provided by the Chinese Government. As per ICIS, China's PE and PP consumption - the world’s largest polymer resin importer - rose to around 16 mln tons and 13 mln tons respectively in 2009, up 38% and 27% from 2008, including local output and imports. Demand growth for polymers this year has been driven by re-stocking on the back of the Chinese government’s massive economic stimulus package. China’s capacity to produce polyethylene and polypropylene will expand at a double-digit pace next year, while demand growth is expected to ease, as per CBI. Polyethylene (PE) capacity would jump by 1.99 mln tons in 2010 to 11.1 mln tons, while its ability to produce polypropylene (PP) would increase by 2.74 mln tons to 12.7 mln tons. This will include not only new capacities due to start next year, but the impact of plants that were commissioned in H2-09. Demand for the polymers would continue to increase in China but the extraordinary growth witnessed this year may not happen again. This is partly explained by the low base in 2008, when there was a severe weakness in demand and consumption of different grades of PE and PP had either fell or had very minimal growth. PE demand would rise 7.1% next year to 16.27 mln tons in 2010, while PP demand would grow 12% to 14.55 mln tons next year, moderating from the projected 31.5% surge in demand for PE and 24% jump for PP in 2009. Recovery of exports of finished plastics products since the middle of the year should also bode well for the PE and PP market.
Several Middle East plants continue to run at lower rates. Al Waha Petrochemical’s PP plant at Al Jubail is running at 70% of capacity after restarting last week following a three-week outage due to technical problems. Oman Polypropylene shut down its plant at Sohar for a two-month turnaround in February while Advanced Petrochemical Co’s PP plant will be taken off line in March for three weeks of scheduled maintenance and Petro Rabigh’s linear low density PE (LLDPE) plant, which started up in 2009 continues to run at low operating rates due to technical issues. Although the government has provided assurances that gas supply to the industry will increase significantly in the next two years, producers are currently facing a severe shortage, with household consumption being given priority over industrial demand. In Saudi Arabia, cuts in oil production imposed by OPEC have reduced supply of associated gas, while in Kuwait, increasing demand for gas by the power sector, especially in summer, has severely restricted availability for petrochemical production. In Iran, lack of foreign investment has stalled gas extraction projects in the South Pars region while rising heating demand in winter has caused existing supply to be diverted to households. The silver lining against over supply is growing requirement for polymers in the key China and India markets. In India, the PE shortfall is rapidly increasing, with demand growth expected to grow in double digits in 2010 due to strong gross domestic product (GDP) growth. China’s PE and PP ‘implied’ consumption was expected to grow by double digit this year, but much lower than last year’s 38% and 27%, according to industry estimates. Consolidation in Europe and possibly in the US due to poor economics could also lead more Middle East supplies to Europe, and help ease the oversupply in Asia.
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