NPE ’15: US PE bullish, despite price cuts because of oil plunge

HOUSTON (ICIS)–The plunge in energy prices has brought down US polyethylene (PE) values this year, but a major producer remains bullish heading into this year’s National Plastics Exposition (NPE).

That’s the term used in a recent conference call by LyondellBasell’s new chief executive, Bob Patel, who said that he remained “relatively bullish” on the demand outlook for polyolefins, particularly in the US.

A big reason for Patel’s bullishness stems from PE’s profit margin, which hit record highs throughout 2014 but began tailing off when energy prices took a dive late in the year.

PE producers have cut prices four months in a row and may do so again in March because of the oil plunge. Two producers want to stop the slide by increasing prices, but few sources give those nominations a chance, considering the ample supply situation. The prevailing sentiment seems focused on a rollover or slight decline for the March contract.

But much of Patel’s bullishness at LyondellBasell comes from the performance of the producer’s PE unit. LyondellBasell’s earnings data showed that its cost for making ethylene in 2014 averaged about 15 cents/lb ($331/tonne), while the producer sold high-density PE material (HDPE) for an average price of 77 cents/lb.

Such a huge profit margin goes a long way in explaining why ethylene and PE are LyondellBasell’s top two products in the Americas. US PE is by far the producer’s largest ethylene derivative, accounting for 70% of the ethylene made by the company in the Americas last year.

Many ethylene producers also make PE, taking advantage of cheap production costs made possible by cheap shale gas in the US and North America. The ethylene derivative’s extraordinary cost advantage has sparked a boom in new PE plant announcements over the past two years, with 17 planned new PE units in the US, including multiple projects at some sites.

While it seems unrealistic to expect that all of these projects would be built, as a group they represent a total of 8.1m tonnes/year of new capacity. Some will break ground in 2015 for scheduled start-ups in 2016-17.

Petrochemical industry watchers say there is a reason why the PE business is so popular. “They’re the only guys out there making any money right now,” a distributor said.

Major US PE producers besides LyondellBasell include Chevron Phillips Chemical (CP Chem), Dow Chemical, ExxonMobil, Westlake Chemical, INEOS, Total, Nova Chemicals and Formosa Plastics.

Sponsored by the Society of Plastics Industry (SPI), the NPE takes place from 23-27 March in Orlando, Florida.