Dow sees ethylene/PE cycle plateau – not trough

US-based Dow Chemical sees the ethylene/polyethylene (PE) cycle flattening out in the coming years instead of falling into a deeper downturn.

“The shape of the ethylene curve this time around is more a plateau than peak and valley,” said Andrew Liveris, chairman and CEO of Dow, on the company’s Q4 conference call.

This benign outlook is because of delays on the supply side, as well as conservative assumptions on demand. However, Dow sees momentum in the global and US economies going into 2017.

For the US, he cited a “tailwind” from the Trump administration’s intention to cut taxes, streamline regulations and embark on “fair trade” policies to create a “vibrant manufacturing sector”.

“We see delays in MTO (methanol-to-olefins) and what’s going on in China because of emissions and their commitment to Paris,” said Liveris, referring to the Paris COP21 climate change agreement that China has signed.

Dow also noted Iranian operating challenges, and Saudi Arabia’s (and Dow’s) expectations for a stronger oil price environment.

Many analysts and consultants expect a trough in ethylene and PE operating rates in 2018-2019 as major new capacity comes on and ramps up in the US, where Dow only sees a flattening.

“We’ve been different [in our outlook than] notable industry consultants for a long time. And I want to point out to you that we’ve been right and they haven’t,” said Liveris.

“We have a granular view, on the ground around the world, in particular where all the new builds are occurring … We understand what’s going on in terms of steel on the ground,” he added.

STABLE OPERATING RATES

For the 2017 outlook, Jim Fitterling, president and chief operating officer of Dow, sees stable operating rates in the ethylene chain.

“If anything, the ethylene chain looks like its staying where it is in terms of operating rates if not tightening up as we move into the year. We’ve already seen some tightening in Asia Pacific, and we know that things are going to balance a little bit in North America as we move through the year,” Fitterling said.

While there’s been some length in North America ethylene from incremental debottlenecks, downstream PE capacity has yet to come on in any meaningful way. Once these PE plants come on in 2017, already high ethylene operating rates of 87-89% could rise further, he noted.

Fitterling also characterised the European market as balanced and poised for steady growth.

In the meantime, Dow’s Sadara joint venture in Saudi Arabia with Saudi Aramco, with all 26 units of the massive project complete, has been ramping up PE production.

“We’ve been bringing up Sadara PE all through [2016] and that [volume has] been well placed and prices have filled up very nicely… So the big new capacity coming on includes us, and we’re not seeing any weakness in the chain,” said Liveris.

PERFORMANCE PLASTICS

In the fourth quarter of 2016, Dow’s performance plastics segment saw volumes rise 4% year on year, helped along by Sadara, driving sales up 4.9% to $4.84bn. However, adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell 12.2% to $1.14bn on higher feedstock and energy costs and planned maintenance.

This led to the performance plastics segment’s EBITDA margin shrinking to 23.6% versus 28.2% in the year-ago period.

TEXAS CRACKER ON TRACK

Meanwhile, Dow’s 1.5m tonne/year ethane cracker in Freeport, Texas, is more than 95% mechanically complete.

“Texas-9 is on track… We crossed 95% mechanical completion and greater than 50% of the unit operations inside that plant are already in the commissioning and start-up [phase]… It’s really coming together strong,” said Fitterling.

Fitterling responded to an analyst’s question on whether the cracker is on track for completion in mid-2017. While Dow did not specify a timeframe on the conference call, it had targeted completion of the cracker by Q2 2017.

Downstream from the cracker will be 400,000 tonnes/year of Dow’s ELITE polyethylene (PE); 350,000 tonnes/year of low density PE (LDPE); 320,000 tonnes/year of elastomers; and 200,000 tonnes/year of ethylene propylene diene monomer (EPDM).

PLAQUEMINE FLEXIBILITY

Dow’s recently expanded cracker in Plaquemine, Louisiana, has demonstrated it can crack over 80% ethane while maintaining feedstock flexibility.

“We’ve exceeded the original design [capability] by proving the plant’s ability to crack over 80% ethane and we’ve maintained the flexibility to switch between ethane and propane,” said Jim Fitterling, Dow president and chief operating officer.

“It’s the most flexible unit in our fleet now and that’s going to provide big advantages in Louisiana, which, if anything, from time to time gets tight in that pocket,” he noted.

The plant, which was expanded by 250,000 tonnes/year in late 2016, can also crack butane and naphtha, he added. The LA-3 cracker unit previously had capacity of 758,000 tonnes/year of ethylene, according to ICIS plants and projects.

Dow also completed a PE 
expansion in Seadrift, Texas, 
in December, executives said on the conference call, but there were no additional details as of press time.