Global PE faces even more new capacity in 2020, oversupply, poor margins

BARCELONA (ICIS)–Global polyethylene (PE) markets – already in oversupply during 2019 from US expansions – face further pressure in 2020 as even larger volumes of new capacity come onstream, especially in China.

During 2019, a total of 6.9m tonnes/year of PE capacity were due to start up around the world, according to the ICIS Supply & Demand database.

In 2020, 8.3m tonnes/year are due onstream, led by 4.8m tonnes/year in China and 1.6m tonnes/year in the US (see map and table below).

Against a backdrop of slowing economic growth and disruption caused by the US-China trade war, a price war is already underway and margins are falling, especially in Asia.

US shale-based producers have been exporting increasing volumes from their new facilities during 2019.

With the key China market subject to tariffs of up to 30%, US companies have been seeking new markets or to increase share elsewhere in Asia, Africa and Europe.

As they have cut prices to achieve this, a price war has developed in some areas, with values falling to levels not seen since the aftermath of the 2008 financial crisis.

US ethane-based integrated PE producers enjoy some of the lowest feedstock costs in the world so have scope to cut prices further and still maintain profitability.

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The same cannot be said for Asia naphtha-based cracker operators, which have seen ethylene and PE margins fall deeply into the red, possibly to the lowest levels in the last 10 years.

Cracker operators are considering cuts to operating rates.

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The market outlook in Asia for the rest of 2019 and into January 2020 remains bearish in view of sluggish PE demand, year-end destocking by producers and the upcoming start-up of a US export terminal – Enterprise Products Partners and Navigator’s terminal located at Enterprise’s Morgan Point on the Houston Ship Channel.

In Europe, margins are still positive though PE producers there are also suffering from an influx of US material.

ExxonMobil took its cracker at Notre Dame de Gravenchon, France, offline on 6 December saying production of PE had been impacted by a “number of external factors” that had put “significant financial pressure” on its units.

It was re-started on 19 December.

ExxonMobil has a very strong position in the metallocene linear low density polyethylene (MLLDPE) market in Europe, and its products command a premium.

The arrival of new US MLLDPE into Europe at knock-down prices has led to price erosion.

OVERSUPPLY COULD WORSEN IN 2020
During 2020, capacity additions are forecast to accelerate, as China takes over from the US as the key driver of PE expansion.

Although some of the Chinese projects could be delayed, it seems likely that the global PE market will face further significant oversupply, especially if downstream demand growth continues to slow.

The limited trade war truce agreed between China and the US may benefit chemicals in 2020 if economic sentiment improves as a result.

Most US tariffs on Chinese chemicals remain in place.

On 19 December, China said it would lift tariffs on some grades of US PE and PP.

Thumbnail picture: ‘Polytunnels’ in the UK made of PE
Source: FLPA/John Eveson/Shutterstock

Interactive content by Miguel Rodriguez-Fernandez and Antonio Biancofiore

Additional reporting by Ben Lake, Yeow Pei Lin, Nigel Davis, and Linda Naylor

Focus article by Will Beacham

Visit the ICIS US-China trade war topic page