Dow sees resilient PE demand in 2022, will ramp up exports – CEO

NEW YORK (ICIS)–Global polyethylene (PE) demand should continue to be resilient in 2022 while Dow ramps up production and exports, its CEO said on Thursday.

“For every 1% of GDP growth in the marketplace you need 2-3 world-scale PE plants to come online, and our expectation is that is not going to change. We see strong demand across all sectors for plastic products,” said Dow CEO Jim Fitterling on the company’s Q4 earnings conference call.

“Most of [the new projects] are going to start coming on in the second quarter to mid-year… and so I think market growth is going to help moderate some of that [impact]. Our expectations on operating rates are 2-3 percentage points higher than what the industry is expecting in PE,” he added.

The Dow CEO sees 4m tonnes/year of capacity coming on in North America with half of that destined for the export market.

He also pointed out that about 50% of the global PE capacity additions through 2025 will be in high cost regions, with 60% in northeast Asia.

“With the advantage being in Canada, the US, Argentina and the Middle East – the places that have good structural low-cost ethane positions – we’re going to be in a good place and operating rates are going to be very high,” said Fitterling.

While Dow ended the year a bit constrained on volume from the impacts of Hurricane Ida in the US and the Terneuzen cracker outages in Europe, marine packed cargo volumes for exports in December were the highest since March and further improvement is expected through 2022, he noted.

The main export destination for PE exports is Asia, and Dow will be watching developments post Lunar New Year closely.

In Asia, local producer PE margins remain underwater on high naphtha feedstock costs and a slow start to the year ahead of the Lunar New Year, the CEO noted.

“We’ve seen some rate reductions at some Asian producers that are higher cost… As we come out of [Lunar] New Year, we’ll watch closely on both PE as well as ethylene glycol (EG),” said Fitterling.

“It’s good for us obviously with our footprint and our advantaged cost positions here. We just have to continue to improve on these marine packed cargo shipments to take advantage of that arbitrage with Asia,” he added.

The CEO sees US PE exports picking up in a number of markets, with India in particular coming back relatively strong.

“As we navigate through Omicron and start to see less of an impact on the labour force, we’ll see those numbers loosen up, and that’s why we’re looking for higher operating rates and 6% volume growth [for Dow overall] coming out of the machine this year,” said Fitterling.

Dow’s Packaging & Specialty Plastics (P&SP) segment saw sales fall 7% in Q4 versus Q3 to $7.2bn with volumes down 3% and pricing down 4%. Operating earnings before interest and tax (EBIT) declined 26% sequentially to $1.44bn from a very strong Q3.

Operating rates in the P&SP segment in Q4 were down about 5% from where Dow had been operating through the rest of the year, the CEO noted.

“We’re running at much better rates right now. Our outlook for rates for the year on ethylene and derivatives is north of 87%… and that’s the way things are running right now – really strong,” said FItterling.

At Terneuzen, Netherlands, one cracker has been back online since the beginning of the year, and the other is in start-up phase, he added.

Looking to Q1, Dow expects P&SP sales to be in the range of -3% to flat versus Q4.

In the US, Dow has two 4 cent/lb price increases for PE on the table which look to be lining up for February and March, said Fitterling.

Focus article by Joseph Chang

Thumbnail shows PE pellets. Image by Al Greenwood