Converters in SEA waiting on the sidelines as 2010 approaches

Throughout Southeast Asia, players report that the market is quiet these days and that trading activities are slow.  Among the reasons most commonly cited as an explanation for this state of affairs is the pending implementation of a free trade agreement between the members of the ASEAN-6 (Malaysia, Singapore, Thailand, Indonesia, the Philippines and Brunei), which is set to eliminate customs duties on trade between the six nations.  The free trade agreement is part of the program of the ASEAN Economic Community, which was founded in 2003 with the goal of eliminating intra-regional customs duties by 2020 and is currently operating ahead of schedule.  Duties between the ASEAN-6 will be eliminated as of January 1, 2010 while duties within the ASEAN-CLMV nations (Cambodia, Laos, Myanmar and Vietnam) are set to be eliminated by 2015.
 
The impending elimination of customs duties will result in an immediate reduction of 5-10% on the total cost of polymer products traded between most members of the ASEAN-6 while also compelling local producers throughout the region to offer material at prices more closely corresponding to the prevailing spot import offer levels.  As most buyers are expecting to see lower prices for both import and local materials following the abolition of duties, many have retreated to the sidelines for now, commenting that they are unwilling to purchase anything beyond the bare minimum needed to maintain their operations between now and the end of the year.  This has resulted in sluggish trading activity throughout the region's polymer markets, with traders and distributors complaining of a persistent lack of buying interest while many overseas producers are absent from the region for now as their short-term prospects appear more hopeful in other markets.

In the region's PP market, the upcoming elimination of intra-regional duties has combined with a generally bearish estimation of the market's medium-term prospects to result in downward pressure on sellers in spite of firm energy prices and rising propylene feedstock costs.  In Indonesia, domestic producers are mostly electing to leave their offers unchanged this week as they are not hopeful of enticing much additional buying interest before the year-end, while a few distributors offering locally-held import cargoes have surfaced in the market with prices around $30/ton below local producers' offers, although they too say that they have been unable to attract much buying interest.  In Thailand, domestic offers were also reported to be mostly stable this week as distributors complain that buyers are absent from the market while waiting for the start of the new year.  A converter in the country reported that they are only interested in making a few purchases in order to maintain their operations for now, adding that they are not rushing to make new purchases even though some production problems within the country have left some distributors short of PP.
 
A similar situation is in place in the region's PE markets, which are beginning to show signs of weakening prices in spite of rallying prices in China and higher ethylene feedstock costs.  In the Philippines, a plastic bag manufacturer commented that the offers they have received for locally-held imports have fallen PHP550-1650 ($12-35/ton) when compared to the previous week, which the converter took as a sign that distributors are feeling some pressure to sell off some of their stocks.  The buyer added that demand is generally sluggish these days as most converters are waiting until January for all non-essential purchases.  In Indonesia, supply for HDPE film is described as tight this week owing to some production problems on the part of a local producer.  However, these production problems have not yet resulted in any additional buying, nor have they spurred any price increases, as buyers in the country generally comment that their stocks are sufficient to meet their needs over the short term and that they have no urgent need for new material.