After a year of unprecedented challenges from COVID-19, the world polyethylene resin market is looking at a period of excess capacity.
That's the outlook of Nick Vafiadis, plastics vice president with Houston-based IHS Markit. Vafiadis spoke Oct. 22 as part of the 2020 Global Plastics Summit.
The virus slowed both PE demand and capacity growth, he said, but ended up being more about production constraints than demand destruction. The pandemic also provided "a surprise opportunity to reassess plastic's role in society," Vafiadis added, as it helped slow the spread of the virus through plastic bags, personal protective equipment and other uses.
The year also brought lower energy prices and volatility in resin prices and margins. Export markets opened up to U.S. suppliers, while new capacity was delayed, causing the market to be tighter than expected, Vafiadis said.
Global PE demand should grow 1 percent for 2020, even with these issues. Several factors — including global restocking, low PE prices affecting recycled resin demand, pandemic-related PE demand and delays or reversals of PE bag bans — combined to add almost 20 billion pounds of global PE demand in 2020.
But even with these delays, Vafiadis said that a record overbuild of almost 30 billion pounds is set to hit the global PE market from 2020-22. This excess capacity "will put real pressure" on operating rates, prices and margins until 2022, he added.
Global PE operating rates are expected to fall to 80 percent in 2022, their lowest level since 1985. Low operating rates could lead to the potential shutdown or cutback of higher-cost production, Vafiadis said.
In the U.S. and Canada, PE operating rates should be 90 percent this year, but decline to 85 percent in 2022-23. Future price increases also could be challenged by long market conditions next year, according to Vafiadis.
And although global demand growth will recover to 4 percent, the PE market is looking at a slow recovery through 2023.
"There's going to be too much nameplate capacity chasing too little demand," Vafiadis said.
The Global Plastics Summit 2020 was an online event hosted by IHS Markit and the Plastics Industry Association.