By John Richardson

THE ABOVE table illustrates the 2018 impact on smaller LLDPE markets of the arrival of big volumes of new US production.

Big percentage increases such as these can be misleading when they are from very small bases.

But look at it from this angle: Vietnam, Turkey, Malaysia, Thailand and Taiwan, province of China, are very small markets when compared with China. If you add our 2018 estimate of these countries’ consumption together it comes to just 3.1m tonnes. Compare this with China’s 11.1m tonnes of expected demand.

To some extent, the rise in US shipments to these smaller countries is the result of the rebalancing of markets. The rebalancing is in response to the 25% tariffs China has imposed on US LLDPE cargoes since late August last year:

  • Volumes that say Malaysian producers would have sold to local buyers have been replaced by US imports.
  • Malaysian producers have been able to compensate for these lost sales by increasing their shipments to China, as the tariffs have made the sale of US cargoes in China much less viable. This partly explains why Malaysian LLDPE exports to China look set to total 218,102 tonnes in 2018 – a huge 458% increase over 2017.

The booming Chinese LLDPE market

But this isn’t the whole story. Many countries that have negligible import demand have also made major export gains in China this year. For example, South Korean exports to China look likely to increase by 51% in 2018 over last year to 292,922 tonnes.

This is the result of the surge in Chinese demand for LLDPE resulting from the heavy restrictions on imports of scrap PE for environmental reasons. There has also been strong growth in consumer spending, even though spending has dipped over the last few months because the Chinese economic slowdown.

This is reflected in China’s overall LLDPE import data. In January-November 2018, imports were up by 22% over the same period last year to 3.6m tonnes. And despite what seems to be overstocking, November imports were up by no less than 95% compared with October.

US exports to China collapse

Now take a look at the above chart. This shows the month-by-month pattern of US exports to the same five destinations listed in table at the beginning of this post , and also China.

What you are seeing is a big dip in US exports to China from September onwards as the tariffs started to bite.  US producers have attempted to make up for this dip by raising exports to other the other destinations:

  • US exports to China fell to just 10,924 tonnes in September-October compared with 49,458 tonnes in July-August.
  • Meanwhile, US exports to Indonesia, Vietnam, Malaysia, Thailand and Taiwan, province of China, jumped to 42,454 tonnes in September-October from 24,970 tonnes in July-August.

US exports to Turkey have been rising all year which is partly down to the reluctance of Turkish buyers to acquire Iranian because of renewed sanctions. In 2018, Turkish imports of Iranian material look set to fall to 61,789 tonnes from 91,798 tonnes in 2017 – 33% lower.

But overall Turkish imports are likely to be flat compared with 2017. This would follow strong growth in 2017 over 2016. This indicates that the US will have probably made big gains in Turkey over Iran and other importers as demand growth has slipped on a weaker Turkish economy.

Smaller markets to face major pressure in 2019-2020

Total US LLDPE exports look likely to total around 3.3m tonnes of 2018 compared with 2.2m tonnes in 2017. I expect exports to increase to 3.7m tonnes in 2019 and 4.3m tonnes in 2020, , based on our estimates of the rise in domestic production versus the rise in local demand.

There is a very good chance that the US/China trade war will continue, which would mean the tariffs on US LLDPE remaining in place.

The Chinese economy could already be in recession because of the largely unrecognised slowdown in lending. A Chinese recession would very probably result in a global recession.

Would US LLDPE producers cut back on production in response to a fall in global LLDPE demand? Probably not as they have a strong feedstock cost position and many are integrated upstream into natural gas production

  • The only end-use market for surplus ethane is steam cracking into PE and other ethylene derivatives. Ethane has to be disposed to allow natural gas sales.
  • New US LLDPE plants have big capital costs to pay back, making any return on investment better than no return at all.

I therefore believe that new US plants will continue to run very hard, despite a weak demand environment and despite the inability of the US producers to export to the key China market.

So expect not only Southeast Asian (SEA) and Turkey to be flooded by US LLDPE in 2019-2020. The same will apply to Europe, which is the world’s second biggest import market behind China.

PREVIOUS POST

US/China trade deal in March would likely quickly unravel

07/01/2019

By John Richardson YOU CAN bet on a rally in equity markets and in oil prices if...

Learn more
NEXT POST

Turkey PE demand could be 8% lower as economic problems continue

11/01/2019

By John Richardson TURKEY’S apparent demand for PE may have fallen by 8% i...

Learn more
More posts
Global polyethylene in 2020: Margins will reach historic lows as new growth model emerges
08/12/2019

Here is a first of a series of outlook articles for 2020 where I focus on the risks ahead for the gl...

Read
Long term downcycle will transform global petrochemicals, creating new Winners and Losers
06/12/2019

By John Richardson THIS IS not a normal downcycle. Please get over that idea however many people, bo...

Read
Asian PE and PP margins at lowest levels in at least five years and will go lower……
04/12/2019

By John Richardson NOT since at least the beginning of 2014 have Northeast and Southeast Asian polye...

Read
Asian polypropylene market heads for major 2020 downturn
02/12/2019

By John Richardson THE ASIAN polypropylene (PP) market hasn’t been as bad as the region’s polyet...

Read
China new vehicle sales: A long term decline and what this means for petrochemicals
29/11/2019

By John Richardson THE MAINSTREAM view is that there is nothing fundamental about the decline in new...

Read
Asian copolymer polyproplyene used as a sink for growing oversupply of ethylene
27/11/2019

By John Richardson A SURE sign that the Asian ethylene-to-polyethylene (PE) markets are distressed c...

Read
Asian polyethylene shutdowns? Once again, good luck with that idea
25/11/2019

By John Richardson I was new to the game as I had only been analysing the petrochemicals business fo...

Read
Europe to become much more self-sufficient in polyethylene because of sustainability
20/11/2019

Yes, I know I promised to focus on Asia and its cracker-to-PE industry today and how the region will...

Read

Market Intelligence

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

Learn more

Analytics

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