DowDuPont sees ‘short and shallow compression’ in PE cycle in 2019

NEW YORK (ICIS)–DowDuPont expects a relatively mild and quick downturn in the polyethylene (PE) cycle in early 2019 amid stable inventories and high operating rates, a senior executive said on Thursday.

“There are some predictions out there that everything is going to collapse. I’m not sure I believe that,” said Jim Fitterling, CEO of Dow Chemical (Materials Science division of DowDuPont), on the company’s Q3 earnings call.

“We’ve seen that inventories are relatively under control. They’re actually down at the end of the third quarter slightly. Inventories are at 42 days, and that’s basically what you need to run the supply chain,” he added.

In the third quarter, DowDuPont’s packaging and specialty plastics segment where the PE business resides saw sales up 11% year on year to $6.1bn and operating earnings before interest, tax, depreciation and amortisation (EBITDA) up 4%.

The operating EBITDA margin fell to 19.5% versus 20.9% in the year-ago period.

In the quarter, the segment benefited as its European assets were able to use flexible feedstocks, while market share gains were made in Asia, Africa, India and the Middle East, said the executive.

“Volume growth and the margin on that volume is offsetting… some of the compression you’ve got across the rest of the base. And we’re continuing to keep the focus on making sure we’re getting the right nominations out there on the pricing,” said Fitterling.

With additional PE units coming up amid high 90-95% operating rates for ethylene and PE, he sees in the early part of 2019 a “short and shallow compression and then we’ll come out of it”.

Photo: This is bubble wrap made with polyethylene (PE).
Photo source: Al Greenwood