NEW YORK (ICIS)--LyondellBasell expects demand and pricing for polyethylene (PE) and polypropylene (PP) to stay “stronger for longer” on reopening-related demand, its CEO said on Friday.
“With all due respect to all the prognosticators, they’ve underestimated demand consistently over the last year… We still have global reopening in front of us [and] so many durable goods that are on backorder - automobiles, appliances, furniture,” said Bob Patel, CEO of LyondellBasell, on the company’s Q2 earnings conference call.
“Many value chains are still very low on inventory, down through finished goods… So when you think about all those factors, it’s hard to imagine that demand would weaken in H2,” he added.
As PE inventories start to normalise, the company’s overall polyolefins sales in Q3 are expected to rise over Q2 with more product available to sell.
“We are starting to restore [our PE] inventories back to more normal levels. They’re higher than they were back in Q1 but still not above historic levels, and we continue to be hand-to-mouth on several grades. Both in the US and Europe [inventories] are improving,” said Patel.
However, LyondellBasell’s PE inventories are not to the level where it is positioned to boost exports meaningfully from the US, he noted.
Meanwhile, customer inventory levels appear to be low.
“When we’ve had some intermittent, unplanned outages recently, [customers] seem not to have much inventory because if we’re a day or two late, they’re very concerned. Anecdotally I would say there’s not much inventory downstream, especially because there’s this anticipation of pricing leveling off as well,” said Patel.
“We’ve been talking about that for months now, and prices continue to rise because of the persistent demand strength. All of that says to me that customers are not holding an extraordinary amount of inventory. When we’re late, they call us right away,” he added.
As US July PE contract discussions are ongoing, the CEO cited tight markets, hurricane season, a heavy US maintenance schedule for the industry in Q3 and early Q4, and more price increase announcements for August.
LyondellBasell’s August PE order book is stronger than its’ been in any other month in the year, largely because it has more volumes to sell.
“We’ve been constrained all year and as we try to inch our inventories back to more normal levels, we can with confidence take on more orders. We’re still constrained [on PE] but on some grades we have enough availability… In some areas, we’re still at contract minimums,” said Patel.
“Bottom line is that Q3 US polyolefins sales should be higher than Q2 as we produce more and sell more,” he added.
PP MARKET TIGHTER
Inventories are tighter on the PP side versus PE, as durables demand – especially from autos and appliances - continues to strengthen, the CEO noted.
“We’re very tight on PP and for the most part, are managing to contract minimums with our customers. As some of these bottlenecks relieve themselves for auto production, that’s just going to make the market tighter,” said Patel.
“My outlook is that PP is going to be tight through the rest of the year… Propylene is going to be consistently high for the foreseeable future,” he added.
EARNINGS CLUES FOR H2
While Q3 sales are expected to be higher than in Q2 for polyolefins, it’s unclear whether earnings will break the record level in Q2.
Much of Wall Street expects earnings to moderate in the second half of 2021 across the board in chemicals and polymers.
“We don’t guide on earnings but if I think about Q3 versus Q2, we should have another very strong quarter in Q3. It remains to be seen if we can get to a record level that we did in Q2, but certainly very strong and well above prior records,” said Patel.
“And in Q4 we’ll have some seasonality. But still from a historic perspective, Q4 will be well above historic Q4 levels,” he added.
LyondellBasell’s Olefins & Polyolefins (O&P) - Americas segment posted record earnings before interest, tax, depreciation and amortisation (EBITDA) in Q2 of $1.58bn, up 82% from Q1. It’s O&P - Europe, Asia & International segment also had a record Q2 with EBITDA up 72% from Q1 to $708m.
Focus article by Joseph Chang
Thumbnail image shows objects made of PP