LyondellBasell sees durable goods demand recovery in H2 2024, firm PE prices – CEO

NEW YORK (ICIS)–Global durable goods demand should finally pick up in H2 2024 on falling interest rates and inflation, ending the longest such downturn in history, said the CEO of LyondellBasell.

“We expect moderating interest rates, reduced inflation and infrastructure-related stimulus spending will begin to support a gradual return to healthier demand for durable goods during H2,” said LyondellBasell CEO Peter Vanacker on the company’s Q4 earnings call.

Demand for durable goods lagged the overall economy during 2022 and 2023 as markets digested the extraordinary high levels of consumer spending that came with pandemic-era stimulus, he noted.

While LyondellBasell expects 2024 earnings to improve versus 2023, the early part of the year is off to a slow start, and not just for durables.

“As we begin 2024, the majority of our business are continuing to face slow demand seen in Q4 2023. But we are seeing a few early signs of improvement,” said Vanacker.

“Our O&P (Olefins & Polyolefins) – Americas business is seeing modest demand improvement. In Europe, order trends are improving from a very low level as our O&P customers begin to pursue modest restocking,” he added.

Restocking in Europe is being spurred by shipping disruptions through the Red Sea and Suez Canal.

GRADUAL EARNINGS RAMP THROUGH 2024
For all of 2024, LyondellBasell expects seasonal demand improvement to start towards the end of Q1 and continue through the summer and through H2.

“This has been the longest downturn that we have seen as far as I can look back in our history. So one would expect that – if you look at inflation rates going down and interest rates going down, more consumer confidence in Europe, maybe also in China – demand would go up,” said Vanacker.

US MOST ROBUST WHILE EUROPE, CHINA CHALLENGED
On a geographic basis, the US has clearly been the most resilient economy for LyondellBasell and recent trends bode well for a recovery.

“The US has been quite robust. You see robust margins on the polyethylene (PE) side and also inflation rates are going down. And already you see a little bit of indication there are more houses being built and sold, and that of course has a direct impact on demand for durable goods,” said Vanacker.

LyondellBasell’s O&P – Americas segment saw Q4 2023 earnings before interest, tax, depreciation and amortization (EBITDA) rise 19.8% from Q3 on an adjusted basis to $604 million on higher volumes and margins.

In contrast, its O&P – Europe, Asia & International (EAI) segment posted an adjusted loss of $87 million in Q4 versus a loss of $45 million in Q3.

Low European demand is expected to persist into 2024 despite some restocking from shipping disruptions, while China demand continues to be slow to return.

“China is the largest market for chemicals, exceeding North America and Europe combined. We continue to watch closely for targeted stimulus and other measures that could drive improved economic growth in China,” said Vanacker.

Q1 OPERATING RATE OUTLOOK
For Q1, LyondellBasell expects its O&P – Americas business running at around 80% operating rates with some planned maintenance – down from about 85% in Q4.

“During Q1, we expect PE prices to remain firm with modest improvements in domestic demand and ongoing strength in export markets. We anticipate ethane and energy costs will remain favorable for our assets in the region, providing some margin tailwinds,” said Ken Lane, executive vice president, Global Olefins & Polyolefins at LyondellBasell.

Meanwhile, its O&P – EAI business should see operating rates of around 75% – up from about 65% in Q4.

“As we move into 2024, we expect weak European demand will persist with ongoing consumer uncertainty. Nonetheless, we are seeing modest improvements in orders as some customers begin to restock and seek global supply as imports moving through the Red Sea are disrupted,” said Lane.

“Demand in China remains muted as customers manage inventories with the approach of the Lunar New Year amid a slow economic environment,” he added.

Focus article by Joseph Chang

Thumbnail shows durable goods. Image by Andy Wong/AP/Shutterstock