LyondellBasell, Dow see strong PE/ethylene cycle

Dow Chemical and LyondellBasell are optimistic on the polyethylene (PE) and ethylene cycle even in the face of major US capacity expansions starting up in 2017 and 2018.

Strong demand and low inventories are supporting a favourable outlook, LyondellBasell CEO Bob Patel said on 28 April.

“Looking forward, we continue to see olefin and polyolefin market demand supporting strong global operating rates over the near term,” said Patel on the company’s Q1 earnings conference call.

Polyolefins chain margins remain strong for both US shale-gas and naphtha-based production worldwide, he noted.

Heading into a seasonally higher demand period in the spring and summer, PE inventories, especially in the US, are at low levels, he added.

LyondellBasell should see the benefit from US PE price increases that took place in February and March in Q2 due to a lag effect on implementation, said Patel. US PE contract prices rose 5 cents/lb ($110/tonne) in February and 3 cents/lb in March. April prices rolled over with a planned 3 cent/lb increase by producers delayed until May.

“[The US PE market] feels tight to us, so we just have to see how the quarter plays out,” said Patel.

On the ethylene side, “given that the derivatives in some cases are ahead by a quarter or two, of the cracker expansions, we’re pretty constructive about the ethylene markets… We’re focused on running full out for the remainder of the year”, he said.

“A year ago, many consultants were predicting a more severe reduction in operating rates as new US-based capacity was expected to start up during 2017 and 2018. But with continued global demand growth and project delays, the decline from today’s very high operating rates is forecast to be relatively shallow and short,” said Patel.

NEW PLANT COMING

The CEO sees global effective ethylene operating rates dipping from 2016 levels but still well above 90% in 2017 and 2018.

“The focus is now turning towards 2019 and 2020 where it appears that capacity utilisation could exceed the high levels of 2015-2016,” said Patel. Based on a chart shown, operating rates trend towards the 95% range by 2020.

LyondellBasell plans to break ground on its 500,000 tonne/year high density PE (HDPE) plant at LaPorte, Texas, in May, he said. Start-up is expected in mid-2019. Beyond that, the company has “one more [ethylene] debottleneck” at Channelview, Texas, and then would consider other PE 
expansions, said Patel.

LyondellBasell’s Olefins & Polyolefins – Americas segment posted an 18% year-on-year decline in earnings before interest, tax, depreciation and amortisation (EBITDA) to $723m in Q1 2017 despite 23% higher sales of $2.6bn. Its EBITDA margin fell to 27.8% versus 41.5% in the year-ago period.

DOW OUTLOOK

Dow Chemical also sees strong conditions for ethylene and 
PE margins even amid major new capacity starting up in the US 
in 2017, executives said on 
27 April.

ATTRACTIVE MARKET

“The ethylene cycle continues to look attractive to us, even in the slower growth environment… and a low-to-mid oil price environment. Operating rates are still hanging in there at 90%, even with new capacities coming on line,” said president and chief operating officer Jim Fitterling.

“Our view is continued strength in the ethylene cycle and continued strength in the polymer market.”

Dow’s performance plastics segment posted a slight decline in EBITDA in Q1 2017 to $984m versus $991m in the year-ago period on 21% higher sales of $5.0bn. Volumes were up 5%, while pricing was 15% higher year on year.

However, around 40% high-
er feedstock costs, start-up costs for its US cracker and planned maintenance of its Terneuzen, Netherlands, cracker took EBITDA margins down to 19.6% in Q1 2017 versus 23.8% a year ago.

Going forward, Fitterling 
sees “strong price momentum heading into Q2” with volumes “very strong”.

Globally, Dow has “doubled and tripled down” on its direct sales and marketing machine
 on the ground across the world and especially in emerging markets to foster demand, noted chairman and CEO Andrew Liveris.

“The fact that we’re in Western China… the fact that we’re opening up in Urumqi, China… we have this ability to create new demand,” said Liveris.

DOW SEES CTO SLOWING

China’s ethylene and PE capacity additions via coal-to-olefins (CTO) is likely to slow as the government aims to control pollution, said Liveris.

“My direct exposure to the China administration suggests that their [commitment] to emissions control is strong. So even though they have got the CTO/MTO capacity, they are slowing it down quite a lot,” said Liveris, who is also head of the American Manufacturing Council in the US Trump administration.

Liveris also noted that the end product from CTO/MTO plants is “really commodity, low value” PE with limited impact on higher end PE supply/demand balances.

NEXT PROJECTS

Coming down the home stretch of starting up two multi-billion dollar capital projects – the US cracker and derivatives and its Sadara joint venture with Saudi Aramco – Dow is planning incremental capacity expansions.

“As we have done these massive investments… we’ve had a mind’s eye to… the next load of capacity. You should think of [these] as incremental from here because we have these big bases,” said Liveris.

“We are reviewing all of that now, and we’re going to have something to say about that very soon.”