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US domestic PE logistics challenges may create bigger opportunity for other producers in Europe

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By John Richardson on 25-Apr-2022

By John Richardson

SO MUCH, PERHAPS, for the theory that if the US suffers no outages on the scale of 2021, we will this year see a surge in polyethylene (PE) exports as further new capacity came onstream.

Nobody should really be surprised about the reason why US PE producers may soon have to cut production because of a limited ability to export, despite no further major losses in output during 2022: Logistics.

The pandemic has completely upended domestic and international supply chains. In the case of the US’s struggle to export, Chemical Data & Intelligence (CDI), an ICIS service, reports local supply chain issues are the cause of the problem.

There is a shortage of railcars and trucks to move resins around the US and to the container ports. An advert was apparently broadcast on a Texas radio station, seeking truck drivers with their own vehicles. The wage? A staggering $20,000 a week!

Another local supply chain problem reported by CDI is insufficient warehouse space to house the big increases in PE production, which might not be fixed until the end of this year.

Unlike the still very much disrupted and very expensive China container-freight routes to the West, there are apparently far fewer problems with US container routes to Europe and the rest of the world.

The problem is instead, for the reasons detailed above, getting resins to the ports to load onto container ships.

“Exports for all grades moved up to 37.5% of total sales in March but need to be closer to 45% to balance and allow producers to run at or above 90% of operating rates,” according to CDI in its April low-density PE (LDPE) and linear low-density PE (LLDPE) report on the US market.

Focusing just on LLDPE in today’s post, consider the chart below.

Last year saw US LLDPE exports fell to 4.7m tonnes from 5.5m tonnes in 2021 on the major production losses caused by the Texas winter storm and hurricanes. Based on January-February exports, this year’s total LLDPE exports are in line to be again 4.7m tonnes despite a scheduled 18% increase in capacity.

A lot could change over the rest of this year. But local supply chain problems seem as if they will take a while to resolve.

In this world of not only fractured supply chains, but also very unpredictable and highly disrupted global trade flows of PE, one set of producers’ problems can be another set of producers’ opportunities.

As I discussed in my 21 April post, there is a very good chance that Europe’ high-density PE (HDPE) imports much higher this year than in 2021. This is likely to be due to the feedstock and energy shortages resulting from the Ukraine-Russia crisis.

Nobody knows the impact of Europe’s cost-of-living crisis on PE demand. But we do know that in the case of LLDPE, most demand comes from essential single-use applications.

You can make a case, as I have done, that if we move to the endemic phase of coronavirus, single-use demand could decline from its 2020-2021 peaks in Europe and the rest of the developed world.

But consider this further complication, however trivial this sounds versus what really matters, which is nothing short of a humanitarian disaster: The extra single-use demand generated by the millions of people displaced by the Ukraine-Russia conflict.

As I said, the humanitarian aspect is what really matters. But businesses must continue to function in this crisis and the opacity of demand is making running polyolefins businesses very difficult indeed.

But higher European PE imports in general is an opportunity that Middle East and Asian exporters simply cannot afford to overlook. The chart below explains why – again focusing just on LLDPE. It shows scenarios for China’s net LLDPE imports in 2022.

China accounted for more than 50% of total global net imports of LLDPE in 2021 among the countries and regions that imported more than they exported.

I believe China could face a recession this year – two consecutive quarters of declining real GDP growth (as opposed to official GDP growth). This may occur as it adds more PE capacity, and as it runs its PE plants at quite high operating rates. I will detail my arguments for a recession later this week.

For more information on how you can get the data and analysis you need to focus more of your PE sales efforts on Europe, contact me at john.richardson@icis.com.