By John Richardson

POLYETHYLENE (PE) industry planners need to factor in the following as they prepare for 2012:

1.) Oil prices are causing demand destruction in the global economy. They could go higher due to the Iranian nuclear crisis. In real dollar terms, as fellow blogger Paul Hodges has written, crude prices were the highest they had ever been last year, undermining what was already weak consumer spending in the West.

2.) A “demand recovery” in China post Lunar New Year has to be put into the proper context. Restocking has already taken place as converter inventory levels were low. But any recovery will be capped by the Chinese government’s limited ability to increase bank lending, and by a worsening export environment for finished goods because of problems in the West. Demand growth in 2009-2010 was exceptional and will not be repeated. “Price recoveries” will be about limited restocking and margin recovery for naphtha-based producers. It will not and cannot be any better than that, despite what stock market and investor sentiment might say in the short term, as the economic fundamentals remain too weak.

3.) Middle East capacity is increasing. Last year also saw higher production at plants brought on-stream in 2009-2010 as a result of technical problems being resolved. The side below, from Global Trade Information Services, illustrates how the Middle East took a bigger share of imports in a weaker China PE market. As we discussed before, overall PE imports are likely to have fallen by around 4% in 2011 over 2010.

GTISJan2012.jpg4.) Asia’s less competitive naphtha-based PE producers will have to display “exceptional, and uncharacteristic, market discipline”, in the words of a source with a major North American producer, to bring supply and demand back into balance. Operating rates in Asia were this week said to be at 80-90 percent following cutbacks in Q4 2011. But deeper cutbacks, and plant closures, could well be necessary. The danger is that the reverse happens. The brief price recoveries we are likely to see over the next few months could be brought to an end as producers raise operating rates in an attempt to regain lost market share.

5.) Volumes displaced from China, as a result of higher Middle East production, will continue to search for a home, particularly if the Asian naphtha-based industry fails to show enough market discipline. The US saw a sharp decline in exports to China, as the above slide shows, but managed to largely compensate for this by strong sales to Latin America, according to a chemicals analyst we spoke to this week. This year, however, the US might not be as lucky, as everyone, even the Middle East, seeks outlets other than China – including the US market itself.

What’s next? Contact us and we can discuss.


Difficult Year For Naphth-based PE


By John Richardson THE first quarter of the 2012, and very probably the rest of ...

Learn more

Hits And Misses For Indian Projects


By Malini Hariharan The Indian project scene continues to see some hits and miss...

Learn more
More posts
Why China’s polyethylene imports could be either 22m tonnes or 3m tonnes in 2030

By John Richardson THERE are so many angles to this that, as with the potential outcomes of the US p...

Debate about refinery closures, re-configurations a harmful distraction for the petrochemicals business

In the second of a four-part series of blog posts that examines the paradigm shift confronting the p...

Developed world polymers demand: layer after layer of new complexity

By John Richardson THE PROPOSITION that petrochemicals and polymers demand in the developed will see...

China rapid rebound promises another great year for petchems, but beware of the fault lines

By John Richardson IT helped immensely that as the rest of the world was shutting down, China’s fa...

Plastic rubbish: the pandemic is increasing rather than reducing the pressure for change

This is the first of a series of blog posts where I will examine the environmental paradigm shift an...

Retreat of globalisation and implications for petrochemicals

By John Richardson EVER SINCE the Berlin Wall fell in 1989, and the last great geopolitical struggle...

European petrochemicals at risk of delayed demand collapse as new business model emerges

By John Richardson AS DELEGATES take part in this year’s virtual annual European Petrochemical Ass...

US polyethylene: resilient demand could be at risk from delay to new stimulus

By John Richardson THIS REMAINS a mystery that needs to be solved: why US polyethylene (PE) markets ...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more