Takeaway from IHS Presentation on PE Outlook

 

Among the several informative and thought-provoking presentations and panel discussions at the third annual Global Plastic Summit (GPS2015) last week in Chicago, co-hosted by IHS and SPI, was “Polyethylene: 2016 and Beyond”, presented by IHS’s Nick Vafiadis, global business director plastics & polyolefins.

 

I’m going to focus on Vafiadis’ key takeaways regarding the North American market, starting with his projection for end of year 2015, which concurs with that of other industry sources I’ve talked to; namely, PE prices will likely remain flat through this month and next, despite suppliers’ aim to implement their 5ȼ/lb hike, now effective this month. Through September 2015, he places domestic demand at up 3.1% and export demand at up 8.7% for a total 4.5% increase in demand, and average PE plant operating rates at 94.4%, in what has been a well-balanced market.

 

But change is coming. By end of first quarter 2016, Vafiadis predicts PE prices to increase by 3ȼ/lb, driven by tighter ethylene supply due to a heavy Q1 cracker turnaround schedule. But, the big story, starts in the subsequent two quarters when new production from new entrants comes on stream fully, and Vafiadis predicts PE prices dropping. In Q2, Braskem-Idesa (B-I) in Mexico is expected to impact U.S. imports to that country. Competition will increase as B-I’s HDPE and LDPE resins start to enter the U.S. market. In Q3, the new Ineos/Sasol HDPE joint venture in Deer Park, Texas, and Nova’s LLDPE plant in Joffre, Canada, will further increase supply and domestic competition. With regard to HDPE, in particular, Vafiadis anticipates that prices may separate from other resins due to increased competition.

 

There are further significant new North American PE expansion projects planned for 2017-2020, most of which will occur, though some scheduled start dates could slip, while other may cancel, according to Vafiadis. But, he also expects several new foreign North American PE investments/joint ventures to pop up. He ventures that SABIC might be one of them.

 

The 2016 capacity excess will be concentrated in low-cost/high-demand regions of North America, but also the Middle East, and China.  This will result in new and incumbent North American suppliers focusing exports on Latin America and Europe which provide best netbacks. Vafiadis expects these markets ought to absorb most North American exports in 2016.

 

His key takeaway to PE processors: leverage competition and reduce contract commitments