US PE producers optimistic despite looming tariffs

Polyethylene (PE) producers LyondellBasell and DowDuPont expressed optimism on the outlook for the polymer on recent second quarter earnings conference calls, even amid looming China tariffs on US imports.

Global PE markets are expected to remain tight through 2018 and into 2019, the CEO of LyondellBasell said on 10 August.

“Last year globally we had very high operating rates – really near full capacity in ethylene and polyethylene. If you look at change in supply and change in demand from 2017 to 2018, supply growth is exceeding demand growth… by less than 1%,” said LyondellBasell CEO Bob Patel, on the company’s Q2 earnings conference call.

“Given that we’re starting at very high operating rates, coming off by about 100 basis points on operating rates is frankly negligible in terms of impact on market. In prior cycles we’ve seen reductions of 10% in operating rates or greater,” he added.

In addition, for HDPE, which accounts for around 70% of LyondellBasell’s PE output, demand growth is expected to exceed supply growth by almost 1.5% in 2018, he noted.

In 2019, overall PE supply and demand growth are expected to nearly match, while HDPE demand growth would exceed supply growth again, the CEO said.

“Who would have thought we’d have price rollovers when this much new [US] capacity comes on?” Patel said.

“If by the end of the year operating rates have dropped 1%, in my view, we still have a very tight market with not much capacity coming in the next couple of years… We’ve got a pretty tight market with normal seasonality,” he added.

CHINA TARIFF IMPACT

And the global PE markets should be able to adjust to US-China tariffs well, similar to how the styrene markets adjusted to China antidumping duties (ADDs), he noted. “Demand is fairly fixed – it’s just a question of how that demand is met. I think one consequence of the tariffs is that [China] MTO (methanol-to-olefins) plants run harder. The other is that maybe trade patterns will shift such that China’s demand will be met more from the Middle East and perhaps more US product flows to Europe and other places,” said Patel.

“We’ve seen a bit of that in styrene” where China has imposed ADDs on product from the US this year, he noted.

“The market has managed through that change very well. So I would expect we’d see similar things in polyethylene. And I’d step back from all the tariff noise and say that global operating rates are very high and demand is growing at very good rates,” said Patel.

China’s second round of proposed 25% tariffs on $16bn in US imports now includes high density PE (HDPE) and most grades of linear low density PE (LLDPE). Low density PE (LDPE) is now excluded while polypropylene (PP) is included. China recently adjusted the products from its original list which included LDPE but excluded HDPE and PP.

These tariffs would go into effect once the second round of US tariffs on $16bn in China imports, scheduled for 23 August, takes place.

DowDuPont does not expect the tariffs to have a meaningful effect on the company because of steps it has already taken and because it has plants all over the world.

For the company’s Materials Science segment, there are no signs of pre-buying ahead of any proposed tariffs, said Jim Fitterling, chief operating officer of DowDuPont’s Materials Science segment. He is also CEO-elect of Dow Chemical, the DowDuPont Materials Science company that will be spun off.

“I think if we had seen any kind of pre-buying volumes, you would have seen a different price dynamic in the Asia-Pacific market than what we’ve seen,” Fitterling said.

“We’ve seen good growth in the markets, but most of it is driven by the fact that the Chinese consumer economy has actually been pretty good for our downstream products,” he added.

US PROJECT UPDATE

In the meantime, US PE and petrochemical projects are moving forward. LyondellBasell’s HDPE and propylene oxide/tertiary butyl alcohol (PO/TBA) projects in Texas are progressing on schedule.

“Our organic growth programs are advancing well, with significant construction activity at our Hyperzone polyethylene plant in La Porte, Texas. This is scheduled to start up in the middle of 2019,” said Patel. “We also made very good progress on our PO/TBA project as we work toward a 2021 start-up.”

The company continues to evaluate a new PP project in the US along with a propane dehydrogenation (PDH) plant for feedstock propylene. “We’re still working through the details and the engineering of that. I want to make sure my team provides a very good estimate on capital so that we can make a good decision,” said Patel. “We still see the project as being attractive.”

LyondellBasell had indicated on its previous Q1 conference call that it expected to make a final investment decision (FID) on the PP/PDH project in early 2019. On the Q2 call, Patel characterised the US PP market as “very tight”, and said he expects conditions to continue as such until meaningful new capacity starts up.

DowDuPont has started construction on the expansion of its new Freeport, Texas, cracker with start-up scheduled for late 2019.

“We recently began construction on the expansion of our new Texas-9 ethylene facility, which will increase its capacity to 2m metric tons, making it the largest in the world,” said Fitterling.

“This expansion will support our derivatives, as well as MEGlobal’s new capacity being built next door. And as such, the cracker expansion will come online in late-2019, aligned with the downstream derivative needs,” he added.

DowDuPont’s Texas-9 cracker has ethylene capacity of 1.5m tonnes/year and started up in September 2017.

MEGlobal’s 750,000 tonne/year monoethylene glycol (MEG) project in Freeport is under construction with start-up expected in mid-2019, according to the last update in March 2018 by engineering and construction firm Fluor.

DowDuPont also expects to complete its 125,000 tonne/year bimodal HDPE expansion in St Charles, Louisiana, in the fourth quarter of 2018, along with its elastomers unit in Freeport, Texas.

“Up next, our bimodal gas-phase debottleneck at our St Charles site is expected to be completed in the fourth quarter as part of a planned turnaround of this unit, which we shifted to later in the year to take full advantage of the strong demand in the first half. And our new high-melt index elastomers unit remains on track for start-up by year-end,” he added.

The new elastomers unit in Freeport, Texas, will have a capacity of 320,000 tonnes/year.