US PE market faces supply overhang in 2018

The US polyethylene (PE) market will be facing some downward pressure at the start of 2018 as several large capacity additions are expected to result in longer supply.

Prices in both the domestic market and export markets posted significant gains during the second half of the year as supply and logistics disruptions stemming from Hurricane Harvey crimped availability and pushed pricing higher. ICIS estimated that as much as 36% of US PE capacity was taken offline due to the impact of the storm.

Towards the year end, prices in both the domestic and the export market had begun retreating from their post-Harvey peaks, while there was widespread belief that further declines would be needed to make US export prices competitive in Asia and allow suppliers to meet their elevated export targets for 2018.

Downward pressure is also anticipated in the domestic market at the start of the new year, based on sentiment that new plants will need to engage in price competition in order to gain market share.

DowDuPont, Chevron Phillips Chemical (CP Chem) and ExxonMobil all announced new plant start-ups in the fourth quarter of 2017, with total capacity additions exceeding 2m tonnes/year. Additionally, INEOS Sasol was aiming to start up its new 470,000 tonne/year high density polyethylene (HDPE) plant before the end of the year. The plant had started up prior to the US Thanksgiving holidays but experienced some difficulties.

In addition to the new capacities brought online in 2017, the table lists additional capacity expansions anticipated for 2018, adding up to close to another 1.4m tonnes/year.

US PE EXPORT PICTURE

PE demand in the US is described as mature, and no major growth in US PE consumption is anticipated. Accordingly, the large majority of production from the new plants that were brought online in 2017 or are expected to come online in 2018 will need to be exported.

The US has traditionally directed the bulk of its PE exports to Latin America. While US producers are expected to aggressively pursue additional market share in Latin America, exporters will also be directing much of their attention to Asia, particularly China, as Latin American markets are not large enough to absorb the incremental additions in US capacity.

With some new plants already online, participants comment that offers from these new plants constitute the most attractively priced offers in the export market.