BLOG: Global PE new supply and China spreads tell the real story

John Richardson


SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson.

Global polyethylene (PE) oversupply, when capacity is measured against demand, seems likely to remain at record highs in 2023, regardless of how much stronger demand can realistically become:

  • Between 2000 and 2022, ICIS predicts that global high-density PE (HDPE) capacity in excess of demand was at annual average of 4m tonnes. This is expected to increase to 12m tonnes in 2023. Global operating rates are forecast to slip to 81% in 2023 from an annual average of 84% in 2000-2021.
  • Low-density (LDPE) capacity above demand was at a 2000-2022 average of 2m tonnes/year with the operating rate at 84%. This year, capacity is forecast to exceed demand by 4m tonnes with the operating rate at 79%.
  • Linear low-density (LLDPE) capacity exceeding demand was at 4m tonnes/year in 2000-2022 with the operating rate at 85%. This year, we see surplus capacity rising to 10m tonnes with the operating rate at 79%.

We thought it important to mention this context as Asia and the Middle East move into a major turnaround season in January-March, when some 3.7m tonnes of annualised HDPE and LLDPE capacity is expected to be off line for three months.

As we predicted would happen, the first quarter this year is seeing a heavier-than-usual maintenance season because of the weak market conditions. Asian and Middle Eastern turnarounds due to take place next year are said to have been brought forward to 2023. This, of course, makes sense as global PE producers seek to match production with demand.

But when it comes to new capacity due online in 2023 and 2024, steel in the ground is steel in the ground. Plants might be delayed for a few months, but because many will be at or near completion, commissioning must happen.

Production always must match demand, hence the heavy Q1 turnaround season. But as further capacities come onstream, even global operating rates at multidecade lows in 2023 – which we are forecasting – won’t solve the problem. The low percentage operating rates will apply to ever-bigger base of nameplate capacities.

Here’s the thing, also:

  • China’s HDPE monthly price spreads over naphtha feedstock costs averaged $487/tonne from November 1992 until December 2021. The LDPE average was at $595/tonne with LLDPE at $514/tonne.
  • January 2022-January 2023 monthly HDPE spreads averaged $211/tonne, LDPE $474/tonne and LLDPE $269/tonne. Spreads in January this year fell compared with December 2022.

Until spreads recover to levels much closer to their long-term averages, there will be no full recovery.  While spreads remain around where they are today, this will be reflected in weak margins and poor company profitability. Period. That’s how this industry works.

Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.


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