MOSCOW (MRC) -- Dow is cutting global polyethylene (PE) production rates by 15%, said S&P.
“Given continued global logistics constraints, including port and rail congestion in the US Gulf Coast and dynamic conditions in Europe, Dow is reducing operating rates across our polyethylene assets, resulting in temporarily lowering 15% of our global polyethylene nameplate capacity,” says the letter, dated 24 August.
The letter says Dow expects the cutbacks to help balance high inventories at key global ports and packaging warehouses, particularly in the US Gulf Coast during August and September, the months when strong hurricanes are most likely to strike the region. Hurricane season, which lasts from June to November, has been quiet so far this year, although the National Oceanic and Atmospheric Administration (NOAA) predicted an above-average number of storms.
Dow did not respond to a request for comment. The company is the second-largest PE producer in the world, with a total of 9.8 million mt/year (MMt/y) of capacity, according to Platts petrochemical analytics. ExxonMobil is largest, with 10.6 MMt/y of capacity.
With global resin demand softening and logistics already a challenge, US polymer producers have been expected to reduce rates. PE prices have nosedived in recent months both in the US and globally, as have prices for polyvinyl chloride (PVC) and polypropylene (PP), which are used to make the more durable plastics used in construction and the automotive industry.
Asian polymer exports have meanwhile ramped up, in part because domestic demand has not rebounded following the COVID-related shutdowns of early 2022, but also because freight rates out of the region have fallen back from record-highs. US prices have retreated to compete, but logistical problems at ports have impeded outflows just as domestic demand slowed.
European ports have also seen clogs emerge, slowing imports, while demand in the region has waned amid recession fears and record-high energy costs exacerbated by Russia’s ongoing invasion of Ukraine. “Dow’s notification made it official, but everybody already knew,” a US PE source says.
“This is a very defensive and well thought-out plan to prevent additional price and margin erosion,” says Rob Stier, senior lead of global petrochemical analytics at S&P Global Commodity Insights. “We’re quickly approaching a global net-zero margin environment where supply rationalization like Dow just did is going to be required for the foreseeable future, and all it will do is provide a temporary reduction in price and margin pressure.”
The duration of the rate cuts will depend on how long it takes for European market dynamic as well as jammed-up US and European logistics to normalize, Dow’s letter says.
Europe-based INEOS’s US division gave an early view several months ago of what was to come. In mid-April, the company declared force majeure on polymers produced at all of its US manufacturing sites in anticipation of a cutback in rail shipments resulting from congestion and backlogs. INEOS has five US manufacturing sites with a total of 1.25 MMt/y of HDPE capacity and 1.43 MMt/y of PP capacity.
As per MRC, Dow has signed a memorandum of understanding (MoU) with Chinese food and beverage firm Want-Want for zero-solvent emissions and to develop a circular economy for flexible packaging, said the company.
We remind, Dow, recycler KW Plastics of Troy, Alabama; molder Core Technology Molding Corp. of Greensboro, North Carolina; and sustainable golf company Evolve Golf of Wilmington, North Carolina, collaborated to reuse high-density polyethylene (HDPE) plastic mesh fencing from the previous year’s GLBI in the form of 20,000 ball markers and 5,500 divot tools for this year’s event.