North American buyers of polyethylene resin have been asking a big question this year: Where's all the resin going?
Recent reports from research firm ICIS of Houston partly answer that question by showing big increases of U.S. PE exports to China in the first half of 2023. In that six-month period, the U.S. became China's largest source of imported linear low density polyethylene resin, helping keep the U.S. market balanced for that material.
U.S. LLDPE makers sold more than 1.4 billion pounds of LLDPE into China in the first half, according to ICIS data. That's almost 1 billion more pounds than China imported from the U.S. in the same period in 2022. The LLDPE surge allowed the U.S. to bypass Saudi Arabia, Singapore, Thailand and South Korea to become China's largest LLDPE importer.
Canadian LLDPE exports to China also jumped from less than 100 million pounds to about 275 million pounds in the same comparison, according to ICIS data. That increase allowed Canada to climb from 10th to seventh among Chinese LLDPE importers.
Overall, however, lower costs and slow Chinese demand recovery led major LLDPE exporters to lose almost $600 million in sales of that material to China in the first half, according to a recent research note from John Richardson of ICIS.
"The decline in LLDPE spreads and margins reflects the end of China's real estate bubble and the sharp fall in its exports of manufactured goods," Richardson said. "The export slowdown [to China] has been caused by the cycle out of spending on goods and into services and decades-high levels of inflation."
First-half changes in high density PE imports into China also were extreme, according to ICIS data. Richardson estimated that the eight largest HDPE importers lost $1.1 billion in Chinese sales in the first half, again because of lower costs and meager Chinese demand growth.
In that six-month period, U.S. HDPE exports into China jumped from about 130 million pounds to almost 600 million pounds, according to ICIS. That increase moved the U.S. from ninth place to third among HDPE importers into China.
Canada had been outside the top 10 in that category in the first half of 2022 — with less than 100 million pounds of HDPE sales into China — but jumped to ninth with sales of more than 110 million pounds.
Richardson pointed out that both the U.S. and Canada have advantaged feedstock costs vs. most of the rest of the world. Large amounts of PE capacity have been added in North America in the last decade because of improved access to low-cost natural gas from shale deposits. Much of this new capacity has been targeted for export markets, since the amounts added are far more than what's needed to handle domestic demand growth.
"The U.S. needs to export 45 percent of its PE production in general to hit operating rates of 90 percent," Richardson said. "The logistical challenges that held up exports in 2022 — shortages of trucks, railcars and warehouse space — seem to be largely over."
He added that because of supply and demand balances, current global resin markets for HDPE and LLDPE — as well as polypropylene — are "almost perfect buyers' markets."
"Converters and brand owners should have saved many millions of dollars on resin purchases since the downturn began in January 2022." Richardson said. "If not, the [chief financial officers] and CEOs of these companies need to be asking their procurement teams very searching questions, as do investors."
In North America, increased exports of PE to China and other global destinations have served to prevent North American PE prices from falling so far in 2023, even though many processors had anticipated lower prices in that period.
Through July, North American prices for all grades of PE are up a net of 3 cents per pound in 2023, according to the Plastics News resin pricing chart. Some buyers have seen small non-market price adjustments this year, making their PE prices flat so far. Through July, the number of buyers receiving these adjustments hasn't been large enough to be reflected on the PN chart.
North American PE price hikes remain on the table, but have been held back by demand that's been average at best. PE producers and buyers have been battling for much of 2023. Buyers were able to fight off a 5-cent price hike in April, while producers were able to stop an anticipated 3-cent drop in May. Concerns over lower demand amid economic uncertainty and over potential global oversupply of PE resin have been affecting decision-makers in the PE market.