Most resins see higher prices in 2020 amid pandemic

For commodity resins, as with many other markets, 2020 was filled with unpredictable change. The year got off to a rough start with prices declining as a result of COVID-19-related shutdowns. Demand then surged back. This higher demand combined with outages from a pair of Gulf Coast hurricanes to tighten supplies and send prices up.

The net results varied from market to market, but through November, net prices for all grades of polyethylene and polypropylene — as well as for suspension PVC — were up more than 10 cents per pound in North America. Here's a look at how individual commodities were impacted in 2020 and at what 2021 might hold.

North American PE prices through November were up a net of 14 cents per pound in 2020. Prices fell 5 cents in April amid pandemic-related uncertainty, but have surged 19 cents since then. The 2020 increase is the largest annual rise seen for PE resin in the region since 2009, according to Mike Burns, a PE market analyst with Resin Technology Inc. in Fort Worth, Texas.

"If you need resin today, it's tight," Burns said in a recent interview. "But 19 cents [of increases] can't be sustained at current demand and production levels."

The recent shutdown of Braskem Idesa's PE production in Mexico will impact North American PE sales, but prices still have a chance to decline in early 2021, he added.

Starting with Hurricane Laura in late August and then continuing with Hurricane Delta, more than 3 billion pounds of PE capacity operated by Westlake Chemical and Sasol Ltd. in Lake Charles, La., was down for several weeks. Almost 1 billion pounds of PE capacity operated by Chevron Phillips in Orange, Texas, also was down for part of September. Those outages tightened PE supplies.

At the Global Plastics Summit in late October, IHS Markit Plastics Vice President Nick Vafiadis said the virus slowed both PE demand and capacity growth, but 2020 ended up being more about production constraints than demand destruction.

The year also brought lower energy prices and volatility in resin prices and margins, he added. 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," he said.

Burns added in a recent report for RTI that North American PE exports in 2020 reduced inventory enough for suppliers to gain pricing control. Inventories were depleted because of exports and not overall year-over-year demand, he said.

Record PE exports in 2020 balanced inventories and reduced North American incremental volume, which is typically used in lower end-use products such as flowerpots and agriculture films. Currently, Burns added, North America is oversupplied, and capacity exceeds demand by as much as 40 percent. As a result, supply, not feedstocks, is driving North American prices.

In 2021, Burns said that PE suppliers will continue to maintain control, and price reductions will be in small increments over the year.

"Buyers need to continue a strong competitive focus as inventories recover and COVID-19 demand subsides," he added.

A major U.S. polyethylene buyer told Plastics News that sales in many PE end uses were strong enough to allow most processors to pass along increases to their customers. "Food packaging and stretch film have been very strong," he said. "Demand for milk bottles and Clorox bottles is through the roof. ... It's just about everything you buy from a grocery store, like produce and cereal, which uses PE in liners."

The buyer also cited PE packaging used in e-commerce as another growth area, with consumers spending more time at home. He added that the impact of the sudden shutdown of Braskem Idesa's PE production in Mexico — after a supply dispute with the Mexican government — is a sign of how tight PE supplies have become.

Late-year capacity additions on the Gulf Coast have added almost 2 billion pounds of LDPE capacity in the region. A JV between Saudi Basic Industries Corp. and ExxonMobil Chemical Co. is expected to open in early 2022 in Corpus Christi, Texas.

Shell Polymers' massive PE unit near Pittsburgh has an official start date of "early 2020s," according to company officials. Market sources said material from that plant could be commercially available in early 2022. The Shell complex will use ethane from shale gas produced in the Marcellus and Utica basins to make around 3.5 billion pounds of PE per year on three production lines. Most of the resin made there is expected to be sold to customers in North America. The complex is the first major U.S. petrochemicals operation to be built outside of the Gulf Coast in several decades.

North American PP resin prices tumbled 8 cents through April, then surged 19.5 cents through November, leaving regional prices up a net of 11.5 cents per pound for the year so far. And buyers hoping for a peaceful holiday will be disappointed, as prices for December are on pace to be up 10 cents or more, resulting from tight supplies of propylene monomer and from PP makers' desire to improve their own profit margins.

"Everything dried up at first [in 2020] because of COVID," a major U.S. PP buyer told PN. "Then demand tended to normalize and picked up in different areas. People got accustomed to working from home and their buying habits as consumers changed.

"Now, PP demand is on fire. It's through the roof," he added. "We're seeing it in packaging and medical supplies, and the [resin] market is tighter than normal because of turnarounds and the hurricanes."

A large PP unit operated by LyondellBasell Industries in Lake Charles was down for six weeks in late 2020. A unit operated by Formosa Plastics Corp. USA in Point Comfort, Texas, also was down because of mechanical issues. Some units that had been making propylene through PDH technology also were down at times in the second half.

"When these steam crackers are down, it's 'Oh my God — propylene!'" the buyer said. "And [oil] refineries are also making less propylene because people are driving less and using less gas. This all makes the [propylene] market tighter than normal."

The 2020 PP market "has been a mess," according to RTI PP market analyst Scott Newell. "It's been on both ends. The feedstock market and PP resin also has been tight."

Demand from some PP end markets, such as medical, rigid packaging, and building and construction, rebounded well in 2020, Newell said. But PP sales into automotive took a huge hit from shutdowns and still are recovering. The 2021 PP market "should be more balanced, even if we don't see demand sustained at these levels," Newell said.

"Extremely strong" demand for polymer-grade propylene in 2020 was moved into PP resin and other derivatives as well, said Gerard Selvaggio, a partner at Hawthorne, N.Y.-based PP distributor Blue Clover LLC Polymer Solutions. "Several supply problems have kept PGP tight," he said. "And there's been a lot of PP demand in household products, cleaning supplies and furniture."

North American PVC had a strong year of surging demand, as new homes were built and existing homeowners spent big on home improvement projects. Resin prices ticked up 2 cents early in the year, then plunged 8 cents through May before surging by 20.5 cents through November. That roller coaster ride has left regional PVC prices up a net of 14.5 cents for the year.

"If we don't take another order, we're good through the middle of February," an executive with a PVC maker told PN in early December. "That's not normal for this time of year.

"Exports have been strong and people are spending on fencing, decking, rail and siding," the executive added. "They didn't know what to do at first with COVID, but now they're saying they're not going back to their offices and are going to work on their houses."

Construction-related uses, including plastic pipe, account for around 60 percent of annual PVC sales in the U.S. and Canada. Even amid a pandemic, U.S. housing starts trough October were on pace to reach almost 1.4 million for the year. That rate would be up about 0.5 percent vs. 2019 and up almost 5 percent vs. 2018.

Housing starts were at an annual rate of more than 1.5 million in September and October, a very high rate for that late in the year. The high late-year activity may be compensating for an April rate that was under 1.1 million during COVID-19 shutdowns.

North American PVC supplies could be boosted in 2021 by debottlenecks that will add at least 600 million pounds of capacity.

The North American PS market didn't see as much pricing action as other commodities but still showed a net price increase in 2020. Prices fell 3 cents through May before moving ahead 9 for a net gain of 6 cents.

As in prior years, much PS price movement in 2020 was tied to price movements of benzene monomer feedstock, which is used to make styrene monomer. PS markets were affected in the second half of 2020 by the shutdown of almost 600 million pounds of styrene capacity operated by Westlake Chemicals Corp. in Lake Charles. A Westlake styrene unit was closed for several weeks after Hurricane Laura moved through the region.

Most recently, PS moved up 2 cents per pound in November after being flat for two consecutive months. That hike again was impacted by higher prices for benzene. Prices for the material were up 14 cents to $1.55 per gallon for November, an increase of almost 10 percent vs. the prior month.

From an end market perspective, PS continues to face challenges from lower-priced resins such as HDPE and PP. The 2020 PS market "hasn't been anything to write home about," according to Phil Karig, managing director of Mathelin Bay Associates in St. Louis.

"The impact of COVID-19 has certainly affected foodservice demand for disposable PS packaging, while on the retail side, grocery takeout demand, for example, has been better," he said. But in spite of growth in those end markets, Karig said that overall PS demand is down in 2020 and could be down in 2021 as well, although foodservice demand could continue to improve.

Surprisingly, PET bottle resin prices have showed a net decline in North America through November. Prices for the material fell 10 cents through March because of drops in demand and lower feedstock prices. Resin prices have rallied 7.5 cents since that point, but remain down 2.5 cents for the year.

Most recently, a 4-cent PET price hike in October was the result of minor price increases for paraxylene and PTA feedstocks, combined with a surcharge from PET makers to cover spot buys of monoethylene glycol feedstock and higher freight costs, according to Mark Kallman, a market analyst with Resin Technology Inc. in Fort Worth, Texas.

PET bottle resin demand in 2020 also was affected by beverage makers' desire to use more recycled PET content. Collection of PET bottles for recycling, however, was affected in some parts of the U.S. by the pandemic.

Bottled water has been the largest beverage market in the U.S. since 2016, when it surpassed carbonated soft drinks, according to the Beverage Marketing Corp. Total bottled water volume grew almost 4 percent in 2019 and has shown volume growth every year since 1977, according to BMC, with the exceptions of 2008-09. By comparison, per capita carbonated drink consumption in the U.S. has fallen from more than 50 gallons in the early 2000s to less than 37 gallons in 2019 — a drop of at least 26 percent, according to BMC.

"Bottled water's rapid rise happened at the same time consumers started demanding healthier forms of rehydration and refreshment, and it was largely responsible for that change in preferences," BMC Chairman and CEO Michael Bellas said in a May news release.

BMC Research Director Gary Hemphill told Food Business News: "Consumers like the convenience of bottled water in PET packaging. It's lightweight, resealable and virtually unbreakable. It's a perfect on-the-go package for an on-the-go beverage."

In a broader sense, the effects of COVID-19 on the global economy could be long-lasting, IHS chief economist Nariman Behravesh said at GPS 2020. He expects global GDP to be down 4.5 percent this year — its worst decline since 1946. The global economy should recover to show GDP growth of 4.4 percent in 2021 and 3.7 percent in 2022, he added. In the U.S., GDP for 2020 should decline by 3.5 percent.

Behravesh added that the recession of 2020 was the worst seen globally in 75 years, but it was extremely short, lasting only two or three months. This recession also impacted services more than manufacturing, unlike the recession of 2008-09. "The virus is boss, whether we like it or not," he said. "Everything depends on the virus."