How much polyethylene resin is too much?
That's essentially the question being asked by market analyst Terry Glass in a recent insight paper from consulting firm Argus Media of London. In the paper, Glass says that PE oversupply is causing companies to reconsider running plants that may not be cost competitive in the long term, causing a shift in regional strategies.
As an example, he cites LyondellBasell ongoing review of the status of its European PE plants. The firm's assets in the region could be permanently closed, with LyondellBasell saying it's exploring options to increase profitability, seek alternative ownership or close the sites.
Glass said further rationalization of PE capacity in Europe is possible, as producers "face up to the twin challenges of weak demand and the cost of meeting carbon-reduction targets by 2030."
But more PE capacity is on the way, whether it's needed or not. Global nameplate capacity will increase by 12 percent in 2027-28, and by 22 percent over the next five years. As a result, global operating rates are expected to drop to 76-78 percent in 2028-29. New capacity additions are expected to moderate after 2028, allowing operating rates to rise to the mid-80s by 2033.
"This long-term view for new PE capacity is one of the main reasons companies are reconsidering their strategies for future investments, particularity given the cost advantages achieved through low feedstock costs in North America and the Middle East," Glass said.
"One key question to consider is will plant rationalization impact global operating rates such that the global rates can achieve a healthy 88 percent operating rate," he added.
Chinese GDP growth of 5-6 percent per year could increase resin demand and lift global PE operating rates by 1-2 percent over the next five years. But Glass said that, given past experience and continued capacity expansions, Argus doesn't believe that changes in the Chinese market will significantly affect global operating rates, meaning resin makers "will need to adjust their regional strategies accordingly."
"Partnerships, co-investments and strategic exits could help manage the challenges of an oversaturated market, allowing firms to sustain profitability despite increased competition," he added.