Southeast Asia: Navigating uncertainty in the Polyethylene and Polypropylene markets

Southeast Asia’s economy is experiencing strong GDP growth, the second-highest globally after south Asia, despite external headwinds with global slowdown and trade uncertainty. Sectors including manufacturing and infrastructure are driving the economic growth, but the chemical industry is suffering as global overcapacity has placed sustained pressure on production. Polyethylene (PE) and polypropylene (PP), as a crucial downstream segment, are encountering considerable challenges.

High exposure to external expansions

PE and PP operating rates have reduced by an average of 25pc and 20pc, respectively, in southeast Asia over the past five years. China's move towards self-sufficiency has significantly reduced southeast Asia PE and PP exports by 1.8mn t (37pc) over the period.

Beyond reduced exports, the region’s run rate has been further pressured by increased imports from northeast Asia. This is specific to PP, where China’s exports of PP have tripled to 636,000t into southeast Asia over the past five years, with Vietnam and Indonesia accounting for most of these imports. As indicated in the graph below, southeast Asia’s PP net trade position shifted from net exporter to net importer in 2022, while PE followed suit in 2024. This distinction arises from China's accelerated progress toward self-sufficiency in PP compared with PE.

Based on the recent Argus Polyethylene Analytics and Argus Polypropylene Analytics services,  we forecast PE and PP operating rates to remain under pressure with an annual average of 70pc and 67pc, respectively, over the next five years. This decline is largely attributed to China’s rapid expansion and subsequent reduction in imports from southeast Asia. A steeper recovery is forecasted from 2029 onwards following China’s final wave of expansion in 2027-2028 over the subsequent decade, as excess capacity begins to accommodate incremental demand increases.

We also expect PE operating rates to slightly outperform PP, driven mainly because of stronger low-density polyethylene (LDPE) operating rates. HDPE and LLDPE operating rates are forecast to average 64pc and 69pc, respectively, while LDPE is projected at 91pc.

Globally, investments into LDPE capacity have been limited as most investments are focused on high density polyethylene (HDPE) and linear low density polyethylene (LLDPE), which will keep southeast Asia’s LDPE fundamentals firm, although it has experienced declines in recent years. We also expect southeast Asia’s trade deficit to increase over the forecast as nations in northeast Asia (excluding China) will look to divert their exports into southeast Asia as they lose exports into China.

Operational adjustments and policy impacts

The strain on operating rates and profit margins has led producers in southeast Asia to take drastic measures. In late 2024, JG Summit in the Philippines and Vietnam’s Long Son suspended operations without providing clear timelines for when they will resume.

From an expansion perspective, the only upcoming projects are by Indonesia’s Lotte Chemical Titan 250,000 t/yr PP unit and Vietnam’s Phu My Plastic JSC 300,000 t/yr PP unit. Current expectations are for both these projects to start operations by the end of 2025 and early 2027, respectively. But despite these expansions, southeast Asia’s imports are projected to continue increasing owing to weaker local production economics compared with northeast Asia.

To protect domestic production, Indonesia’s anti-dumping committee Kadi has proposed the imposition of anti-dumping duties on PP co-polymer imports from South Korea, Singapore, Malaysia, Vietnam and the UAE, following an 18-month investigation. PP co-polymer is widely utilized across the automotive, home appliance and construction industry. The proposal is currently under review by the Indonesian trade ministry, with an outcome expected around the second quarter of 2025. Additionally, anti-dumping investigations are also ongoing into imports of LLDPE, which plays a critical role in the packaging, agriculture and construction industries, but it is unclear how long the investigation will take. Despite these measures, the broader domestic downstream industries are expected to experience minimal disruption, supported by Indonesia’s strong GDP growth outlook.

Latest US Tariff policy brings more uncertainty

In April 2025, the US announced potential tariffs on Vietnam, Malaysia, Thailand and Indonesia’s exports into the US, up to 46pc, 24pc, 36pc and 32pc, respectively, which are expected to take effect from July 2025, according to the latest announcements. The region’s polymer demand is highly likely to face indirect downward pressure owing to the vulnerability of its export-orientated finished good sector. In 2024, around 8pc of the US’ imported finished plastic goods came from southeast Asia countries, which may now see the risk of a significant fall.

The US also hiked tariffs on China’s exports to 145pc, with China retaliating with tariffs on US imports at 125pc. This could prompt the creation of new trade routes for both polymer and finished goods. Notably, 17pc of China’s PE imports came from the US in 2024. Southeast Asian countries could explore opportunities to increase run rates and export polyethylene (PE) to China if they can secure low-cost feedstocks. But this remains a challenge for the region, as it predominantly relies on naphtha as a feedstock, which is less cost-competitive than lighter options. Additionally, limited upstream integration further disadvantages the region compared to markets in the Middle East and northeast Asia, where more integrated supply chains enhance cost efficiency. Vietnam’s Long Son has announced an expansion using ethane as a feedstock, which is expected to improve economics. Still, it may not be sufficient to significantly boost the region's operating rates.

Furthermore, uncertainty remains as additional US PE supplies are anticipated to enter the region, driven by their cost competitiveness and the low likelihood of southeast Asian countries imposing retaliatory tariffs on US PE cargoes. According to Argus’ Global Polyethylene and Global Polypropylene, some US producers and US regular exporters had begun redirecting their cargoes to Vietnam, instead of China. However, the situation remains fluid, and any continued shift in trade flows could contribute to additional supply entering the Southeast Asian market. Moreover, plastic products previously exported from China to the US will also need to explore alternative markets, including southeast Asia.

Prices set to weaken

As southeast Asia is poised to be a key region having to adapt to global changes, we are now providing new 24-months price forecasts for the region within the Argus Polyethylene Outlook and Argus Polypropylene Outlook services.

Our southeast Asian polymer forecast is underpinned by our weekly assessment of cfr southeast Asia spot dutiable prices. These are the prices of deliveries of dutiable cargoes to major ports in Indonesia, Vietnam, Malaysia, Thailand and the Philippines. Polymer cargoes originating outside southeast Asia are subject to import duty in Indonesia, Malaysia, Thailand and the Philippines.

The polymer price spread to the Japan cfr naphtha price and naphtha-based production economics informs our forecast view. Naphtha steam cracker remains the main source of polyethylene and polypropylene production in southeast Asia, with naphtha dominating 73pc of the cracker feed slate. We gather short-term supply and demand dynamics from our exprt teams sitting in offices around the world.

Forecast cfr prices are now published for:

• LLDPE butene
• HDPE HMW film
• LDPE liner film
• PP raffia

In the first quarter of 2025, tight supply in both import and regional markets contributed to the widening of the polymer-Japanese naphtha spread. A few crackers had already been in extended shutdowns since late 2024 because of technical issues and margin concerns. Malaysia’s Prefchem remained offline because of technical issues and was originally expected to restart after May. At the same time, the sharp drop in naphtha prices — driven by volatile and plunging crude prices during March and April – has further exacerbated the widening of the spread.

Downstream demand is expected to further weaken the spread following the US’ announcement of tariffs. Finished plastic goods are likely to face significant risk of cancelled US orders once the tariffs take effect, and these producers will have to shift their finished goods to alternative markets such as Latin America and the Middle East.

Polymer prices in northeast Asia also serve as a factor for forecasting southeast Asian prices. In 2023 and 2024, PE prices in southeast Asia were approximately $45/t higher than those in northeast Asia, while PP prices averaged around $65/t higher. This price differential was mainly the result of differences in fundamental structure between the two regions. Countries such as Indonesia and Vietnam have relatively limited local production and rely heavily on imports, resulting in higher prices. In contrast, northeast Asia faces more intense market competition, leading to lower prices. Additionally, logistics costs and import tariffs can further widen the price gap between southeast Asia and northeast Asia.

In our latest polymer outlook issues, we are forecasting that southeast Asia cfr prices spreads to naphtha will narrow through the two-year forecast period, driven by more supplies emerging in the market and shrinking downstream export demand. Ongoing trade disputes are likely to prompt the US to shift part of its polymer exports into southeast Asia, further depressing the region’s polymer spot prices. PP will continue to underperform PE, as China is better positioned to export larger volumes of PP to the global market. Despite this downward trend, the inherent fundamental imbalance, coupled with additional logistics and tariff costs, is likely to sustain the southeast Asian price premium to northeast Asia.

Author: Josie Jiang, Dhanish Kalayarasu, Elizabeth Zhang, Simon Sheppard