Asia PP capacity expansion poses challenges to Mideast suppliers

SINGAPORE (ICIS)–Significant polypropylene
(PP) capacity expansion in Asia could squeeze
the market share of Middle East suppliers in
the region.

In the coming three years, 80% of the global PP
expansion is concentrated in Asia, where
capacity is expected to increase over the
period by more than 8m tonnes/year, more than
two-thirds of which will be in China.

On the other hand, capacity expansion in the
Middle East is limited, with only Orpic’s
300,000 tonne/year unit in Oman expected to
come on stream in the first quarter of 2020,
and Borouge’s 450,000 tonne/year unit in the
UAE due to start up around 2022.

The Middle East has been the largest PP net
exporting region in the world, with more than
40% of shipments flowing into Asia, according
to the ICIS Supply and Demand database.

For China, which imports about 5m tonnes of PP
on an annual basis, Middle East cargoes
accounted for about a fifth of the total since
2017, the data showed.

Going forward, Middle East-origin cargoes may
flow more into North America and Europe, where
demand is expected to increase amid scarce
local capacity expansion.

Despite the expected shift in trade flows
stemming from capacity expansions in the coming
years, the Middle East’s share in the Asian PP
market will be supported as its producers have
more room to adjust down offers in a market
downturn given their cost advantage over peers
in other regions.

Some buyers in China also deem Middle East PP
cargoes are of better quality as they contain
lower volatile organic compounds (VOC) compared
with locally produced material.

Middle Eastern producers using liquefied
petroleum gas (LPG) as feedstock still enjoy
strong a cost advantage over Asian producers
regardless of processes.

LPG is readily available in the Middle East,
whereas China relies on imports for raw
materials such as crude and propane.

Chinese PP producers which use feedstock
propylene from propane dehydrogenation (PDH)
units generate much higher margins compared
with those that directly purchase propylene and
methanol as raw material for production. The
propane feedstock for PDH plants in China,
however, are mostly imported from the Middle

This meant that despite recent declines in PP
prices, the margins of Middle Eastern producers
were still much higher than those of Asian

In addition, import forward cargoes are popular
among traders operating both in the Chinese
futures and spot markets for hedging and
arbitrage purposes compared with
domestically-produced spot cargoes, for which
they would need to pay storage fees.

It usually takes one to two months for cargoes
from the Middle East to reach China, making
them perfect to back futures contracts traded
on the Dalian Commodity Exchange (DCE),
industry sources said.

Focus article by Dora Xue

Photo: A container ship at Hamad port in
Doha, Qatar. (By Noushad

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