APLA ’18: War for export market to break out amid global petchem capacity expansions – consultant

CANCUN, Mexico (ICIS)–The proliferation of petrochemical projects around the world will lead to a major battle for export markets, a consultant said on Monday.

“There are too many projects by too many companies well beyond the ability of domestic markets to absorb even a fraction of the new production,” said Bob Bauman, president of Polymer Consulting International.

“There will be a war for the export market unlike anything seen in the past so you need to prepare for battle,” he added.

Bauman spoke to delegates at this year’s annual meeting of the Latin American Petrochemical Association (APLA).

The consultant noted an unprecedented wave of new capacity led by North America and China with additional investments in the Middle East, Europe, India and the rest of Asia through 2025.

While the price setting mechanism in the Asian export market has typically been set by naphtha-based costs of Asia polyethylene (PE) producers, this is not likely to hold, he said.

“With the severe overcapacity, US producers will have to use price to increase market share. To buy market share, price will have to drop below the cost of naphtha-based production which, in the worst case scenario, would be the cash cost,” said Bauman.

The price collapse in PE many expected in 2018 after the wave of US capacity did not materialise because of several factors. “2018 through September was a one-time anomaly,” he said.

Hurricane Harvey in the US delayed the start-up of two crackers by 3-6 months and also severely damaged hexane (C6) co-monomer supply, said the consultant.

China banned recycled plastic imports, requiring imports of about 2.5m tonnes of virgin PE. However, he called this a “one-time gap”.

And the three new PE complexes in the US elected not to fight for domestic market share, running at less than full capacity, he said.

Ethylene and PE prices are falling and expected to continue dropping into 2019 with substantial new capacity starting up, the consultant noted.

“December pricing could set the stage for 2019. Producer inventories are high. Historically, producers reduce inventories for financial reasons,” said Bauman.

The APLA annual meeting runs through Tuesday.