Q: What have been the biggest growth markets for polyethylene, polypropylene and other commodity resins so far in 2022?
Hall: I think the demand pattern of most significance in 2022 is that the segments that saw tremendous growth in 2020 and 2021 have abated. For example, plastic goods related to home improvement projects were flying off the shelves during a steady spate of lockdown-inspired DIY projects.
But how many times a year does one remodel? Appliances, plastic decking, doors, windows and floors are not annual purchases, and their pull on resins has certainly lessened.
Barry: I agree that a lot of the pandemic-driven boom in personal protective equipment (PPE) packaging and bottled soaps and sanitizers has faded, along with plastic decking and lawn furniture businesses that benefited from people wanting to spend more time in their backyards. However, with the pandemic winding down and stimulus funds still in the bank, we heard about a revival of municipal infrastructure projects. Infrastructure spending, along with high energy prices, has made PE pipe a strong growth market this year.
Q: What impacts are these markets seeing from inflation and higher interest rates?
Barry: A couple of observations here. Higher interest rates make it more expensive for processors to carry inventory, whether that's resin or finished goods, which may have contributed to the destocking trend we saw this summer. Also, inflation has caused the average consumer to opt more for the less expensive store brands and less for the premium brands and discretionary goods. I don't know how much this has affected PE demand in aggregate, but it has caused some market share shift at the retail level.
Q: What impact will new PE (Shell) and PP (Heartland) capacity have?
Hall: As with any project, the new supply does get baked into the demand forecast and much of the new product is typically contracted before the project is even through with the investment decision process. That said, the new capacity will take several years before overall demand catches up with it. This is why when such massive amounts of new product begin to be produced, the entire market feels it, and exports play a key role in balancing supply. This could prove challenging in this environment of shipping delays and ports already clogged with inventory, and the only alternative to balance the market is to throttle back production.