InterviewGlobal polyethylene oversupply seen manageable –analyst

10 August 2010 04:56  [Source: ICIS news]

By John Richardson

SINGAPORE (ICIS)--Global polyethylene (PE) oversupply will be “challenging but manageable” over the next year-and-a-half provided there is no double-dip economic downturn, an executive of petrochemical consultancy firm DeWitt & Co said late on Monday.

“My analysis suggests that if economic growth continues into 2011 at the same rate as 2010, 2009/2010 expansions should be absorbed by the market with only 300,000 tonne/year of overhang,” Joe Duffy, De Witt’s vice president for ethylene, polymers & derivatives for Europe, Middle East and Africa regions, told ICIS late on Monday by email. 

“However, more expansions are planned for 2011 which will maintain the overhang into 2012. 

“On paper, conditions should start picking up in 2013/14 – but I would expect this to begin in mid-2012, as buyers seek to restock in anticipation,” he added.

According to Duffy's estimates Asian demand growth would be 2.4m tonne this year versus 3.2m tonne/year of new production in Asia and 2m tonne/year in the Middle East.

This would leave oversupply on paper at 2.8m tonnes this year - but Duffy added that this would be reduced by lower European, Japanese and US operating rates as their exports decline.

He shared the estimates at the petrochemical consultancy’s Asian Olefins Forum in Kuala Lumpur, Malaysia, last week.

The US doubled its exports to China last year, but its export volumes could dip very sharply from the second half of this year, continued Duffy.

And so when you take away what Duffy characterised as the “low hanging fruit” of exports being easily displaced by higher production in the Middle East – and also Asia – this reduces the 2010 surplus by 1m tonnes to 1.8m tonnes.

On the upside more production problems in the Middle East - which has been beset with difficulties in starting-up and stabilising production at new plants - seem very possible, market sources say.

Linear low-density PE (LLDPE) production might also remain constrained by the shortage of butene-1 co-monomer, the result of lower liquids cracking operating rates on cheaper ethane feedstock in the US, Duffy said.

Higher cost liquids cracker production is also under pressure from the new Middle East capacity, he added.

“Delays to start-ups of alpha olefins facilities (which produce butene-1) have also contributed to the shortage. Around 1.8m tonne/year of swing LLDPE/high density PE (HDPE) is being commissioned this year, but LLDPE is tight because of the butene-1 shortage.

“It is also more difficult technically to produce LLDPE and so while the commercial guys might want the right mix of grades, from a production perspective – i.e. achieving close to 100 per cent operating rates – it is easier to only produce HDPE,” Duffy said.

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By: John Richardson
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