China anti-pollution drive to benefit global ethylene, PE cycle – DowDuPont

NEW YORK (ICIS)–China’s crackdown on pollution will benefit the global ethylene and polyethylene (PE) outlook for 2018 and 2019, even as large amounts of US capacity start up, DowDuPont senior executives said on Thursday.

“The outlook for growth in PE is still solid – about a 3.7% growth rate as we look forward,” said Jim Fitterling, chief operating officer of DowDuPont’s Materials Science division on the company’s fourth-quarter earnings conference call.

“While new polyethylene capacity has come on in the US, not enough has come on [overall] to keep up with the market growth rate… I think things are going to be a lot more balanced in 2018 and 2019 than people anticipate,” he added.

China and emerging-market PE demand continues to grow, said Fitterling.

China’s ban on certain waste plastics is having an impact on recycling markets, especially in Europe, where polyethylene terephthalate (PET) and PE material is building up. However, this may not have a major impact on virgin PE demand, he said.

“I’m not sure that has a big effect on the virgin PE growth rate. Most of that recycling is going to move to another country – some of that is moving to southeast Asia right now,” said Fitterling.

However, China’s anti-pollution drive will have major implications, he noted.

“For several years, [China’s] emissions had gone down from burning less coal. Last year they rose. There are a lot of concerns about that – you’re seeing a lot of pressure being put on,” said Fitterling.

“They need to sustain negative coal burning rates – like negative 1% per year to actually have an impact on pollution. And the way you see that is the big pull that’s coming on LNG into China,” said Fitterling.

China must increase liquefied natural gas (LNG) imports by around 17-19%/year to partially replace coal as an energy source to keep pollution down, he added.

“Right now, MTO [methanol-to-olefins] is out of the money in China by about $150/tonne and those operating rates are low. So all these dynamics are very favourable for us as we look forward with this new capacity coming on in the US Gulf,” said Fitterling.

China’s MTO plants use methanol – usually from coal-based production, which is also known as coal-to-olefins (CTO). Some MTO plants on China’s coast use imported methanol.

And the Middle East is running out of natural gas liquids (NGLs), also known as wet gas, another factor tipping the balance favourably for the overall PE outlook.

“The supply side is hampered there with the lack of wet gas, and so many of the Middle East producers, including our friends at Aramco, are now looking at ways to get liquid into the ethylene mix,” said Andrew Liveris, chairman of DowDuPont.

Using crude oil-based naphtha or even crude oil itself, will result in more byproducts and downstream products other than PE.

“So the CAPEX [capital expenditures] side of that, as well as the multiple products, will slow down [PE] supply from the Middle East. I think our Sadara asset is well timed. It’s the last based on rich ethane, and that adds to the point on the supply side,” said Liveris.

Sadara is a joint venture in Jubail Industrial City, Saudi Arabia, between Saudi Aramco (65%) and DowDuPont (35%). It has 26 plants, including a mixed feed cracker and multiple downstream products, including PE.

“We’ve always said we see this cycle looks more like a ridge, and we see nothing that’s going to stop that, for at least the foreseeable years,” he added.