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The substantial expansion of polypropylene (PP) capacity in Asia may squeeze the market share of PP suppliers in the Middle East in the Asian region
.
Future expansion will focus on Asia
Future expansion will focus on AsiaIn the next three years, 80% of the world's new PP capacity will take place in Asia
.
Moreover, in the next three years, the expansion of PP production capacity in the Middle East will be relatively limited, and only two new PP plants will be put into operation
.
Asia is the main exporter of PP in the Middle East
Asia is the main exporter of PP in the Middle EastAccording to ICIS supply and demand data, the Middle East is the world's largest net exporter of PP
.
In 2018, China's PP imports mainly came from Northeast Asia, the Asia-Pacific region and the Middle East, of which 40.
6% came from Northeast Asia, 32.
6% from the Asia-Pacific region, and 21.
1% from the Middle East
.
In the future, more PP produced in the Middle East may go to the North American and European markets, as the demand in these markets is expected to increase with little expansion of local capacity
.
Middle East PP still has strong competitiveness
Middle East PP still has strong competitivenessAlthough capacity expansion will bring about changes in global PP trade flows in the coming years, the Middle East's share of the Asian PP market will be supported
.
Middle Eastern producers using liquefied petroleum gas (LPG) as a feedstock still enjoy a strong cost advantage over Asian producers regardless of the production process
.
Chinese buyers also perceive the quality of Middle Eastern PP shipments to be better, as PP products produced in the Middle East have lower VOC content compared to locally produced materials
.
Among Chinese PP producers, companies that use propene dehydrogenation (PDH) units as feedstock for PP production have much higher profit margins than PP companies that directly purchase propylene and methanol as feedstocks
.
However, propane feedstock for China's PDH units is mainly imported from the Middle East
.
This means that despite the recent fall in PP prices, Middle Eastern producers still have much higher profit margins than Asian producers
.
In addition, imported forwards are popular in Chinese futures and spot markets for hedging and arbitrage purposes compared to domestically produced spot goods, which are subject to storage fees
.
Goods from the Middle East typically take one to two months to reach China, making them the perfect backing for futures contracts on the Dalian Commodity Exchange (DCE), sources said
.
