Global PE run rates lower until 2021 as demand weakens, capacity increases

MILAN, Italy (ICIS)–Polyethylene (PE) production globally is expected to run at reduced rates or the rest of 2020 as growing capacities will meet slowing demand for most end sectors, according to ICIS analysis.

In the first phase of the pandemic health emergency, while lockdowns and logistical issues kept PE supply limited in some cases, demand performed extraordinarily well for some specific applications, mainly packaging uses.

Entering into the second phase, ICIS expects that the softening of demand and the gradual return to higher global PE availability will restore the oversupply situation that was already apparent before the crisis.

Concerning the different PE polymers, demand for food packaging, medical uses and consumer non-durable applications is still favouring mainly low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) markets.

However, the extra demand for these applications is already fading, with some possible differences in grades.

Additional demand for medical packaging applications may survive longer in comparison with other applications, although it makes up only a relatively small percentage of overall PE demand.

ICIS believes that European PE demand will weaken in the coming months, while demand levels in the last part of 2020 will be linked to the outcome of the current gradual restart phase.

The volume of PE output in the US remained high in the first quarter, but as a consequence inventories have increased.

Under the current circumstances, Dow decided to idle some high density polyethylene (HDPE) and LLDPE plants to balance supply and demand.

A similar decision was taken by Lyondellbasell and the company announced a reduction of its plant utilisation rates.

PE capacities targeted for exports, as many are in the US, are currently having less opportunities to find destinations, compared with pre-crisis expectations.

PE demand growth expectations for 2020 in Latin America and Europe have turned negative and even those regions with higher market potential are now seeing their PE growth rates projections for 2020 considerably downsized.

Nevertheless, offers of US PE into Europe in May have increased by around $80/tonne compared with April offers, amid reduced output in the US and higher upstream crude and naphtha prices globally.

Unplanned cracker issues have reduced supply in some PE grades, and some sellers are informing converters of higher prices in June.

While demand in some applications continues to do well, sources do not generally expect PE demand for the rest of 2020 to reach the levels recorded in January and February.

Considering these market conditions, ICIS expects global PE plant utilisation rates to be lower for the whole of 2020.

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PE is used in packaging, the manufacture of household goods, and also in the agricultural sector.

Front page picture: A PE plant in France
Source: Mathieu Cugnot/EPA/Shutterstock

Focus article by Lorenzo Meazza, Market Analyst at ICIS

Additional reporting by Linda Naylor