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December 03, 2021 11:29 AM

Supply improvements finally providing some relief for PE buyers

Frank Esposito
Senior Staff Reporter
Plastics News Staff
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    resin fakuma_i.jpg
    Caroline Seidel
    Resin on display at Fakuma 2021.

    North American polyethylene prices declined by an average of 5 cents per pound in November as improving supplies caught up with demand for the material.

    PE prices in the region also had dropped 5 cents in October. The October decline was the first seen in the PE market in 17 months. Prices had surged since early 2020 as a result of supply issues related to the COVID-19 pandemic and multiple major weather events.

    Regional PE prices had been flat in August and September — ending a streak of eight consecutive monthly increases.

    "It's a replay of last month," market analyst Mike Burns of Resin Technology Inc. said of the November PE drop. "Supply is exceeding demand.

    "Demand is still very good, but production issues have been resolved, so there's more material available," he added.

    One major PE buyer in the U.S. Midwest told Plastics News that although demand is solid in some sectors, it's down from earlier in the year.

    "I'm getting more offers [to buy PE] than I was before," he said. "Hopefully this era of greed [by PE makers] is coming to an end."

    The pandemic has been a PE demand driver, and supplies were impacted by two hurricanes in the second half of 2020 and a winter storm that impacted Texas in February 2021. A record run of price increases then created record margins for PE makers.

    Even with back-to-back price drops in October and November, most regional PE prices are up a net of 33 cents so far in 2021 and 53 cents since January 2020, according to the PN resin pricing chart.

    On the capacity front, Gulf Coast Capital Ventures — a joint venture between ExxonMobil and Sabic — earlier this year added almost 3 billion pounds of capacity in Corpus Christi, Texas. Shell Polymers plans to open a major PE unit near Pittsburgh in 2022. That location will have an annual production capacity of more than 3 billion pounds.

    At the recent Citi Basic Materials Conference, Howard Ungerleider, chief financial officer with PE leader Dow Inc. of Midland, Mich., said that PE demand will remain strong in 2022. According to an ICIS report, Ungerleider said the global economy should expand by 5 percent in 2022, its highest level since 2005. He also said that other signs — including the manufacturing purchasing managers' index (PMI) of the Institute for Supply Management remaining above its 10-year average — are good signs for PE.

    PE demand typically falls by 3-5 percent during a recession, Ungerleider said, but in 2020-21, it rose 3-5 percent because of changes in consumer habits. Demand for PE should rise by 5 percent in 2021, he added, with 2022 GDP forecasts calling for additional supply.

    In the present market, Dow officials said Dec. 1 that the firm's fourth-quarter earnings before interest, tax, depreciation and amortization (EBITDA) would be $150 million to $200 million below current consensus because of higher costs in raw materials and lower prices for PE and co-products.

    Rising costs and lower prices have caused a decline in margins for Dow's packaging and specialty plastics segment, Ungerleider said. But he added that PE order backlogs remain robust, with inventory-to-sales ratios well below 20-year averages.

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