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.