Global PE price war begins as supply grows and demand fades

Author: Will Beacham

2019/09/11

BARCELONA (ICIS)--A global polyethylene (PE) price war is developing as multiple new capacities come onstream just as demand growth stalls on the back of the US China trade war, Brexit, regulatory pressure on single use plastics, and other uncertainties which are dampening consumer and industrial confidence.

Prices have plummeted to multi-year lows as US producers seek to gain market share by undercutting local producers in other regions.

Competition from Middle East exporters has helped to depress prices further.

Almost all of the new US capacity is scheduled for export, with China by far the biggest potential destination.

However, since the trade war intensified, with some PE tariffs scheduled to rise to 30%, US product has been diverted to other markets principally in Asia and Europe.

When demand was healthy, other markets were able to absorb this production without too much disruption. But with growth now slowing, and with the possibility of recession on the horizon, the greater volumes of US capacity are now pushing down prices in some regions and leading to talk of a price war.

On top of that, the Indian government is set to impose the first phase of a countrywide ban on single use plastic on 2 October, which will cover plastic bags, cups, plates, small bottles, straws and certain types of plastic sachets.

The European Commission - the EU's executive body - has set a 50% recovery target for municipal waste by 2020, under the Waste Framework Directive, expanded recently to 55% by 2025 and 65% by 2035.

Brand owners are also piling on pressure for use of recycled polymers.

In the US, while exports have risen significantly compared with the past year, demand in recent weeks has shown signs of slowing as the fallout from the trade conflict and bearish economic indicators suggesting the possibility of a global recession have caused buyers to trim their purchase volumes.

In Turkey, prices are at five-year lows.  US exporters are cutting local prices, but with Middle East producers also desperate to sell, the price trajectory is downwards.

Buyers are delaying purchases in the hope of yet lower pricing and amid uncertainty over demand.

"Real mayhem in the market, US is taking markets down and down, [there is] no end" said a supplier.

Africa's prices have fallen to their lowest level since ICIS records began, nine years ago, and poor global buying has left many suppliers desperate to secure sales.

Africa has been attracting a lot of interest as an alternative destination.

This has led to an intense price war between suppliers, with US material seeing repeated price cuts.

In Europe, linear low density polyethylene (LLDPE) C4 (butene-based) spot prices are at their lowest level since 2009, in the aftermath of the global financial crisis.

High density polyethylene (HDPE) has suffered the most from US imports into Europe, and levels close to those talked for LLDPE C4 have been mentioned but are not fully confirmed.

Gulf Cooperation Council (GCC) prices are also falling, with sluggish demand leaving regional suppliers with surplus stock.

Demand in key markets in the region remains largely slow, despite initial expectations of a seasonal uptick from September onwards when processors would typically restock inventories.

In the east Mediterranean market, Saudi Arabia sellers have reduced offers to recoup market share amid growing availability of lower-priced US cargoes.

Construction activity in the region has also fallen sharply, with industry reports and estimates pegging the decline at around 40% from the previous year.

PE WAVE GATHERS PACE
The first wave of US shale-based projects started coming onstream last year.

For 2019 the country is scheduled to add 1.2m tonnes/year of LLDPE capacity, 820,000 tonnes/year of LDPE and 800,000 tonnes/year of HDPE.

Russia and China are also adding significant amounts, as the Tableau graph below shows, based on data from the ICIS Supply & Demand database.

The US is among the world’s lowest cost PE producers, based on availability of feedstock ethane from shale gas and oil exploration.

Ethane supplies will continue to rise because it is a by-product of the boom in US shale gas and oil exploration, so PE companies – especially those integrated upstream – will continue to make and sell their production even if prices fall further.

Higher cost producers, such as naphtha-based companies in Europe and Asia, will come under increased margin pressure, unless oil prices collapse. Capacity closures are a possibility.

From 2020, China takes over from the US as the main driver of PE capacity expansion, adding 4.81m tonnes of capacity, the data shows.

Top picture source: Kurt Amthor/imageBROKER/Shutterstock

Focus article by Will Beacham

Additional reporting by Ben Lake, Zachary Moore, Linda Naylor, and Veena Pathare

Interactive content by Miguel Rodriguez-Fernandez

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