NEW YORK (ICIS)--Polyethylene (PE) prices have over-corrected based on a sharp collapse in crude oil prices in late April. This could now reverse amid the upturn in crude and a continued recovery in demand as economies open up, the CEO of Dow said on Thursday.
“Two things happened on the pricing side. There was a little bit of a misread on inventories - how much inventory was out there and adjustments people were making on operating rates to match demand,” said Jim Fitterling, CEO of Dow, on a virtual fireside chat hosted by Bernstein analyst Jonas Oxgaard.
“The other thing that happened in April and continued into May was that exports started picking up. We started to see product moving back to China [on a] relaxation of some of the tariffs to get product in,” he added.
In March, China temporarily exempted tariffs that had been implemented on a number of US exports during the trade dispute for one year, including those on linear low density PE (LLDPE) and high density PE (HDPE).
“There was a little bit of an over-correction… You saw what happened with the May oil contracts when they tanked at the end of April… That led to a bit of an overreaction in the marketplace and everyone got into the mindset that things were going south,” said Fitterling.
US EXPORT PRICES TICKING
On 22 May, US spot export prices for LLDPE butene (C4) film and HDPE blow moulding rose by 1-2 cents/lb to 27-30 cents/lb FOB (free on board) US Gulf, as assessed by ICIS. Low density PE (LDPE) film prices were also assessed 1-2 cents/lb higher, at 37-40 cents/lb with the same terms.
US PE sales to Asia, particularly China, have been strong in recent weeks.
For US domestic sales, Dow has a 4 cent/lb price increase for all grades of PE on the table for June contracts.
“I think you’re going to see that as demand is coming back, and actually plastics demand has held up better than just about any chain that we’ve got… they’re going to say well, it hasn’t been as dramatic as we expected on the PE side,” said Fitterling.
PE PLANT IDLING
On 30 April, Dow announced it would idle two PE units in the US and one in Argentina with combined capacity of around 2bn lb/year (907,000 tonnes/year) for at least a month. Dow also reduced operating rates across its portfolio.
“These actions were utilised primarily to clear the congestion in export markets that had come almost to a full stop, and enable a healthier balance of supply and demand, ultimately to support pricing,” said Fitterling.
“As demand starts to come back we can bring those back in. To idle a PE plant is a little more straightforward than idling a cracker,” he added.
Product mix also played into the idling, he noted.
“Things like non-wovens, hot-melt adhesives, films for food packaging and other online ecommerce packaging - that business is strong so those assets are still running,” said Fitterling.
“Assets that were producing more into durables and rigids where that demand is off more, we [had] to slow that down - products that were going more into the construction side of the business,” he added.
DEMAND COMING BACK
In Asia, PE prices have also been ticking higher the past several weeks, coming off a major collapse.
“Obviously naphtha… is kind of setting the floor for what’s happening in ethylene. And so as you’ve seen oil come back up and naphtha back up, that’s putting some upward pressure on the [PE] price,” said Fitterling.
Plastics demand has been buoyed by packaging, PPE (personal protective equipment) and non-wovens. Demand for PPE and sanitation products such as wipes will likely continue in the long term, he noted.
“So if I look at [LLDPE] and [LDPE], those businesses have continued strong. The one that’s been hit a little bit harder on demand would be [HDPE] going into rigids - more into the durables sector. Overall, things are pretty balanced right now,” said Fitterling.
However, as the coronavirus lockdowns are lifted, the durables side - automotive and appliances - along with construction (HDPE for gas transmission pipes) should drive a steady increase in demand, while packaging demand for online deliveries should also continue strong, he noted.
“I feel good about the plastics demand picture. On the capacity side, there have been a lot of announcements on new capacity that have been delayed or pushed out and in some places cancelled completely,” said Fitterling.
“That changes the forward supply/demand picture that people were anticipating and it just moves that fence out, which means things will tighten up a bit sooner than we projected,” he added.
Additional reporting by Zachary Moore
Thumbnail image shows a plastic lid made of polyethylene. Photo by Al Greenwood
Focus article by Joseph Chang