The polyethylene (PE) and polypropylene (PP) markets are both in the midst of an extended downcycle of low operating rates and margins sparked by massive overbuilding and delayed rationalization, according to industry experts who spoke at the World Petrochemical Conference by S&P Global, as per Chemweek.
“By our estimation, [the polyethylene] industry went into a downcycle in the second half of 2022, and the conditions that drove us there persist,” said Jesse Tijerina, head of global polyolefins at S&P Global Commodity Insights. “It’s this oversupply that we’ve been talking about … and then also [the] somewhat weaker global economic demand that we experienced in ‘23 and expect it to go into ‘24 as well. Much like in ethylene, there is additional excess capacity still planned in the next three years, which complicates the matter from a recovery perspective. Without action, these conditions will continue to put pressure on profitability, and we think this could go into 2027 or beyond.”
PE capacity additions outpaced demand growth by 13.5 million metric tons (MMt) over the last four years, Tijerina noted, pulling the global operating rate down from 87% in 2020 to 79% in 2023. Under current demand projections, this excess capacity will not be absorbed for another two or three years; meanwhile, more new capacity is slated for start-up, so the operating rate will remain mired near 80% through 2027.
China is the major contributor to the excess, accounting for 53% of the new capacity anticipated in 2020–27, while the rest of Asia accounts for just 11%. However, demand in China, which averaged nearly 6.5% over the last 10 years, is forecast to slow to just over 4% during the next 10 years. Demand will grow by nearly 8% in South Asia and nearly 6% in Southeast Asia.
The supply/demand imbalance has weighed heavily on PE margins, and regional divergence has been compounded by high crude oil pricing. Tijerina noted that integrated cash margins for naphtha-based production of high-density polyethylene (HDPE) in Asia fell deep into negative territory during 2022–23, and they are forecast to remain negative until 2030. In contrast, margins for ethane-based producers in the US are forecast to narrow through 2026, but they will remain positive near $500 per metric ton, and by 2030, they will bounce back to around $1,000 per metric ton.
With the current downcycle for the PE market already nearly two years long, a V-shaped recovery in profitability is no longer an option, and a U-shaped recovery seems increasingly unlikely, said Tijerina. “We’re likely into an L-shape recovery, and the real question is, how long is this going to take? When we look at our supply fundamentals … it suggests that meaningful action has to be taken now… Delaying projects closer to the upcycle or canceling them altogether is an action that would definitely help. And then, of course, the much-talked-about rationalization as well.”
Several issues affect the pace of rationalization. “Number one, owners generally have an emotional attachment to their assets, and this, in a way, is [a] headwind to rationalization,” Tijerina observed. “Most companies feel that they can weather the storm and that others will not be able to.” By the same token, rationalization is easier following an acquisition or a takeover. “Generally, this is because the new owner is not as emotionally attached to the assets,” he said. “Even if the owners are inclined to rationalize, there’s often resistance from labor unions or local governments.”
Tijerina reminded the WPC audience that while the duration of the downcycle in PE is difficult to predict, it will ultimately end. “Polyethylene will continue to enjoy healthy growth by our estimations [equivalent to] six to eight world-scale polyethylene units per year.”
We remind, Shantou Mingca Packaging Co Ltd and ExxonMobil Asia Pacific Research & Development Co., Ltd (ExxonMobil) announced an innovative double bubble Polyethylene-based Shrink Film solution, the next generation of Polyolefin Shrink Film, created using ultra-low density Exceed XP performance polyethylene. PEF can be used to package products in a variety of shapes, such as electronics, household and personal care products, medicines, food, books and magazines, plastic utensils, and toys.
mrchub.com
en
