2023 Global Market Outlook: Polyethylene
Introduction
The global polyethylene (PE) market is entering 2023 facing poor demand and rising supply levels following significant capacity additions in both Asia and North America in recent years. Recessionary conditions in Asia and Europe along with a US economic slowdown have resulted in weaker overall demand while supply levels have risen following capacity expansions. This has resulted in depressed pricing and negative margins for PE producers in Asia and suppressed margins for European producers. With further capacity expansions expected to come online in 2023, prices and margins are likely to remain suppressed through the first half of next year as the industry seems to be nearing a trough on margins.
Analyst overview
North American PE production and operating rates are forecast to recover slightly in 2023 versus 2022 but will be significantly higher than the low 80% rates seen in 4Q22. Global economies are expected to improve in the 2nd half of 2023 after a 50+% chance of a recession in the 1st half of 2023, which will keep PE demand weak during that timeframe.
In addition, the PE industry is adding nearly 6 billion pounds (a 10% increase) of new capacity in 4Q2022/1Q2023, which will continue to put downward pressure on PE prices and margins for most of 2023. Given these long market conditions, PE exports will need to move up to 45% or more of total sales versus the 37% average in 2022 if producers want to achieve higher operating rates.
With PE prices and margins falling significantly in the second half of 2022 and 1Q2023, the PE market is expected to reach trough levels by mid-2023 and remain there into early 2024 when the next margin recovery period is expected. To ease some of the pain producers are feeling, VWAC (volume weighted average costs) to make ethylene/PE resins are expected to average 3 to 5 cts/pound below this year’s average, but volatility is expected to continue as NGL prices are influenced by movements in natural gas, especially during the strong winter demand months.
Author:
Brian Pruett joined CDI in 1995. Brian has 38 years of refining, petrochemical, and plastics industry experience with much of his career in research, market analysis, and consulting. He has been covering the Polyethylene (HDPE, LDPE, LLDPE) & Polypropylene (PP) industries for CDI since 1997. (In 2023, CDI’s PP practice will be handed over to Kim Haberkost.)
In addition, he applies his wide-ranging background in refining, petrochemical & plastics feedstocks, including ethylene & propylene, benzene & other aromatics to support every level of CDI’s client base. Brian helped train and routinely supports a Sales & Marketing team to grow CDI’s client base within ICIS, CDI’s parent company.
US PE margins to face pressure on slower demand, expanding supply
US polyethylene margins are anticipated to remain pressured into the first half of 2023 as demand is slowing on weaker economic growth even as capacity is expanding both within the region and across the world.
While US margins are expected to face compression, margins for US producers remain healthier than margins for European and Asian producers. Asian PE producers have been operating in the red for the better part of 2022 and margins are likely to remain negative into the first part of next year. High energy costs have also resulted in European producers operating at or below breakeven levels.
Upstream costs
Average spot ethane prices jumped 60% between 2021 and 2022, reflecting higher natural gas costs due to energy shortages following the war between Russia and Ukraine. ICIS analysts expect average spot ethane costs to slip by 17% in 2023, although this would still leave ethane prices at more than double the average values seen in the last pre-pandemic year in 2019.
The jump in ethane costs has increased the volume weighted average industry cost of producing ethylene from 14 cents/lb in 2019 to 25 cents/lb in 2022, with ICIS projecting an average cost of producing ethylene of 22 cents/lb in North America for 2023.
While PE prices and margin increases outpaced cost increases in 2021, prices fell in the latter part of 2022, resulting in squeezed margins for producers. Margins are expected to move into near trough conditions in 2023 amid longer supply and weaker demand.
Macroeconomic headwinds
According to the latest projections from the International Monetary Fund (IMF), global economic growth is expected to slow to 2.7% in 2023 from 3.2% in 2022, while advanced economies are expected to see growth fall to 1.1% in 2023 from 2.4% in 2022.
US manufacturing activity contracted for the first time in 30 months in November while a panel of business economists put the risk of a US recession in 2023 as greater than 50%.
Central banks across the world are tightening monetary policy to combat inflation, shifting from accommodating monetary policies in 2020 and 2021 as central banks sought to stimulate economic activity to combat pandemic-related slowdowns.
New capacity
The second wave of new US PE capacities is expected to conclude in 2023 with Bayport Polymers expected to start up its new 625,000 tonnes/year PE plant in the first quarter while NOVA plans to start up its new 450,000 tonnes/year plant in first half of the year.
Late in 2022, Shell started up its new 1.6m tonnes/year PE plant in Monaca, Pennsylvania, while Gulf Coast Growth Ventures, a joint venture between ExxonMobil and SABIC, started up a 1.3m tonnes/year PE plant in Portland, Texas, in late 2021 and early 2022.
Altogether, these expansions will add just under 4m tonnes/year of new PE capacity to North America at a time that both the US and global markets are slowing in the face of weaker economic growth.
Author:
Zachary Moore joined ICIS in 2016 and currently works as senior editor manager for the Americas region. He covers North American markets for major commodity polymers such as polyethylene, polypropylene and polystyrene along with the polyurethanes chain in addition to assisting in coverage of olefins and aromatics.
Prior to joining ICIS, Zachary covered commodity polymer markets in Asia and Turkey for ChemOrbis as Assistant Manager of Market Intelligence. While working with ChemOrbis, Zachary helped establish their office in Kuala Lumpur, Malaysia and establish standards and methodologies for their stand alone Southeast Asia polymer reports. Zachary was also responsible for overseeing the editorial quality of coverage of the China polymer markets while assisting in coverage of Turkish polymer markets.
He has more than 16 years’ experience in the petrochemical and plastic markets as a markets reporter, researcher and analyst.
Zachary holds a BBA in economics from Georgia State University and an MA from the University of North Carolina-Greensboro.
Europe PE, PP players hope for uneventful year
A year of straightforward mundanity would be very welcome for most polymer players in 2023.
Brexit, coronavirus, logistics chaos, war and rising inflation. These past few years have been an unpredictable mix of events and trends, each fundamentally affecting domestic and international trade.
2022 saw European prices dislocate from other regions following a spike in gas prices in the wake of Russia’s invasion of Ukraine.
The effects of the coronavirus pandemic echoed through global logistics chains, giving European producers an advantage over imports for domestic business.
Unpredictable and expensive shipping rates meant that European sellers could claim a premium and maintain good order levels, as they could ensure that delivery times could be met. This was especially attractive in times of volatility.
Imports were often available at significantly lower prices than European product as exporters struggled to fill the hole in their orders left by China - which was under a lengthy lockdown.
2023 – a regression to mean
2023 will stand alone compared with previous years due to a number of reasons - but mainly because it is expected to see a return to normality.
One important distinction between this year and next will be the steady return of shipping costs to lower levels and more reliable delivery periods.
It will, however, mean increased competition for European producers from imports.
Higher energy prices in Europe, leading to inflated polymer prices, may also prove attractive for many exporters.
Much hinges on the fate of China following the government’s decision to ease its zero-COVID policy.
The effect of two-years of continuous lockdowns on Chinese demand has contributed to a major fall in polymer volumes in 2022. If Chinese demand returns, then the market's dynamics in 2023 are likely to be very different than in 2022.
There is also a question mark about when demand will return to China, and the answer is not so simple. Many analysts predict a wave of the omicron variant because the country has a low vaccination rate.
Supply
One fact masked by lockdowns is that China has steadily increased its self-reliance on polymer production, especially polypropylene (PP), and even more plants are due to come online this year.
"In terms of supply, [European] producers’ margins will continue under pressure because of high energy prices, along with massive new capacities coming onstream, especially in Asia, amid improved logistics," ICIS PP analyst Emialiano Basualto pointed out.
"For these reasons, European producers may lose competitiveness in the global PP market, facing a very aggressive spot market in 2023, especially if the Chinese market remains shaky," he added.
US output is also expanding and at the end of 2022, US sellers began to make increasingly aggressive polyethylene (PE) offers into Europe.
“Global PE capacity is forecast to grow by almost 6% year on year in 2023,” ICIS PE analyst Lorenzo Meazza said.
Serious congestion at Houston port and a healthy local market have kept US product at arm’s length for most of the year. However, a slump in US demand has coincided with an uneventful storm season this winter, meaning that a large push of US volume could be due to arrive soon.
In a rare development, a new US plant is due to open on the East Coast which will mean shorter transit times to Europe. It will also avoid any congestion problem at Houston. Most US polymer production takes place around the Gulf of Mexico.
Demand
As supply streams normalise, it is difficult to assess how demand will develop in 2023.
Demand is estimated to be 10-30% below expected from many sectors, in particular those that use commodity grades.
There is little reason to believe that buying activity will pick up much in Q1. A mild winter so far, has eased the demand for gas which in turn has reduced upward price pressure on polymers.
As the weather gets colder, however, rising energy prices will continue to limit consumer purchases as many will focus on covering their rising bills.
The spring may see a recovery as the weather warms and Chinese demand picks up after the Lunar New Year.
Year-on-year growth of around 2% is expected for Europe (excluding Turkey) in 2023," said ICIS polymer analyst Emialiano Basualto.
Price trends
A normalisation of the market could see a return to a more traditional price trend. In 2022, the gap between spot and contract widened by a large amount.
European producers were able to leverage their reliable delivery times to maintain higher prices, while desperate exporters made repeated attempts to discount to achieve sales on the spot market.
The gap between the two should narrow as the arrival of imports becomes more predictable.
A similar trend can be expected in the monomer and polymer spread which has more than doubled in the last few years but is now trending downwards.
For the time being, however, there may be a limit because polymer producers claim to be unable to reduce prices any further for fear of totally losing their margins.
Conclusion
A weak end to 2022 will likely continue into 2023, and as next year's global growth expectations are revised, 2023 could prove very challenging.
“PE demand projections for Europe have been recently revised downwards on the back of weakening economic conditions in key economies and in the region in general. Most recent data show around 1% year-on-year growth in PE demand in 2023, a significant slowdown after the 2% expected for 2022” ICIS PE analyst Lorenzo Meazza said.
Many players will focus solely on conserving what they have and new investments and ventures could be stifled by a safety-first attitude.
The hope is for a return to normal and a reduction in volatility - although we may still see more unpredictability for at least part of the year.
Author:
Ben Lake is the African and European polymers editor. He has been with ICIS for 6 years and has spent the majority of that time covering the polymers market.
9th ICIS World Polyolefins Conference
Engage with ICIS experts and industry leaders from the polyethylene (PE) and polypropylene (PP) value chains to discuss the most pressing global and regional market challenges.
The 9th World Polyolefins Conference will be taking place on 29-30 March 2023 at the Ritz-Carlton hotel in Vienna.
Evaluate key trends at the forefront of the industry to unearth your winning strategy to adapt and overcome future market challenges.
China’s PE to see rising capacities, uncertainty in demand recovery
China’s polyethylene (PE) capacity expansion is poised to continue in 2023 and exert pressure on supply, while a recovery in end-user demand remains uncertain due to the persistently weak global economy and unclear direction of China’s COVID-19 policy.
About 1.4m tonnes of new PE capacities are scheduled to come on stream in 2023, up by 8.5% year on year, mostly in the first quarter, according to ICIS Supply and Demand Database.
Some new plants are expected to start up in end-December 2022, with the new output expected to be released to the market in the first quarter of 2023. Supply pressure will be higher in the first half of the year as regular maintenance is typically scheduled in the second half.
Most of the new capacities are for HDPE, which has seen heavily squeezed margins. There remains the possibility of new units being delayed or running at reduced rates amid continued high crude oil prices as the upstream ethylene chain remains in the red.
“We expect the operating rate of Chinese PE plants to decline next year, compared with this year. And some unplanned shutdowns due to economic factors will also increase,” ICIS senior analyst Amy Yu estimated.
The International Monetary Fund (IMF) forecasts that global GDP growth will slow to 2.7% in 2023, while Goldman Sachs’ 2023 China Economic Outlook forecasts that the country’s GDP growth will accelerate to 4.5% in 2023.
Continued weakness in global economy and expected higher domestic supply pressure are expected to result in soft PE demand in China.
“Next year, the China market is still in the cycle of new PE capacity, while the uncertainty of demand recovery is high. It is likely to lead to increasing competitive pressure on producers in the spot market,” Yu said.
The Lunar New Year holiday in 2023 falls in late January, earlier than previous years. Hence, many downstream producers are expected to gradually be away from the market after the holiday. Demand is expected to slow down, and most factories will not resume operations until after the Lantern Festival in early February.
As a result, a supply glut is expected in south China during the first quarter of 2023 due to the scheduled start-ups of many new plants.
COVID-related regulations in China remain the focus of the market and bring uncertainty to demand recovery, although the National Health Commission eased regulations in November.
In the long term, there is room for end-use consumption to recover, which will lead to more orders for downstream factories and thus stimulate a rebound in PE demand.
However, it remains to be seen how the easing of policies will be implemented.
Frequent and extensive outbreaks of the pandemic across the country since mid-November 2022 have reduced mobility between provinces and municipalities.
On 7 December, the State Council issued a more optimised COVID-19 policy, clearly stipulating that large-scale lockdowns are not allowed in all regions, which indicates significantly loosened curbs.
However, actual demand recovery remains to be seen as the market needs some time to adapt and react to the policy.
China's PE prices saw volatility in 2022, surging in the beginning of the year amid elevated crude prices and frequent plant turnarounds.
Prices were affected by logistics issues from March due to the outbreak of COVID-19 in many cities, before improving in June in response to the lifting of the two-month lockdown in Shanghai.
However, spot prices slumped from July on plunged crude prices and rebounded supply, hitting the lowest level of the year.
China’s PE imports declined by 9.1% year on year to 11.7m tonnes in January-October 2022, according to China Customs.
Despite the overall decline in import volumes, the arbitrage window has remained open and wide since end-June as most overseas sellers started to lower offers to the China market sharply from the third quarter to lower sales pressure in view of sluggish overseas demand and currency volatility.
Some import cargoes are expected to arrive in December 2022, which could continue to impact the domestic market.
China’s plastics products output in January-October 2022 totalled 64.01m tonnes, a decrease of 4.2% year on year, according to data from the National Bureau of Statistics (NBS).
From April, output tumbled on a year-on-year basis, reflecting weak consumer confidence and overall lacklustre end-user demand.
Total retail sales of consumer goods in China in the first ten months of 2022 rose by 0.6% year on year to yuan (CNY) 36,057.5bn, indicating a much slower growth, the NBS data showed.
Author:
Sijia Li is an industry analyst for China’s polyethylene market at ICIS. She has more than one year experience in chemistry industry. She holds a Master Degree of Economics and has one year working experience in financial industry before joining ICIS.
Asia PE market weighed down by demand weakness in China, Vietnam
The Asian polyethylene (PE) market is expected to see a subdued start to the new year, with China’s demand remaining in a slump as long as its zero-COVID policy persists, while demand in Vietnam also stagnates due to local banking and financing issues.
The absence of a strong demand recovery from two of Asia’s largest PE import markets is expected to have a major ripple effect on the region as a whole, even as southeast Asia braces itself for a flood of possible new supply from new plants and capacity expansions.
China is the world’s biggest PE market by consumption while Vietnam is southeast Asia’s largest consumer, according to the ICIS Supply and Demand Database.
In China, overall demand from the downstream plastic manufacturing industry is expected to remain sluggish while the government persists with its zero-COVID policy.
While some COVID-19 restrictions have since been eased, retail and consumer spending sentiment is expected to remain cautious so long as the threat of snap lockdowns and quarantine orders remains.
China’s PE demand is also expected to take a hit in the early weeks of 2023 due to the seasonal slowdown associated with the Lunar New Year holidays, which officially are observed from 21-27 January. Full activities are not expected until after the Lantern Festival on 5 February.
In southeast Asia, many markets across the region will also observe the Lunar New Year holidays on 21-22 January, while in Vietnam Tet, or the Lunar New Year holiday, takes place from 20-26 January.
“We need to see what happens in the new year and actually even cross over the Lunar New Year period before we can actually see any real demand recovery,” said one market source in Asia.
In Vietnam specifically, PE importers are facing a deluge of challenges, mainly linked to the current state of the Vietnamese economy and interest rates, which could severely dent their buying capacity in the coming months.
Vietnam is a major manufacturing hub for finished plastic products and a duty-free import destination for PE of all origins, making it one of the most competitive markets in southeast Asia.
Vietnam’s duty-free status also means that PE imports could be priced more competitively as opposed to trying to sell to other southeast Asian markets such as Indonesia or Malaysia, where import duties are in place for some origins and which incur higher shipping costs compared with Vietnam.
But Vietnam’s PE demand is under pressure, as the Vietnamese economy faces strong headwinds which are likely to affect the buying power of distributors and plastic converters there.
Vietnam’s banking sector is facing scrutiny from regulators over bad debts and alleged fraud involving private sector individuals, prompting the central bank to step in.
Many banks have tightened lending requirements, resulting in many companies having difficulties securing credit facilities to purchase their raw material needs.
Despite that, many market players feel that while demand will remain stable to soft through the holiday period and for the first few weeks after, there exists some potential for demand to recover from Q2 if China’s COVID-19 measures are eased further, prompting a re-stocking demand rally.
“Although demand in Asia and the Pacific is expected to remain relatively healthy for 2023, cautiousness still remains amidst the global uncertainty and the ‘re-bounce’ of China,” said ICIS Senior Analyst Shariene Goh.
Packaging use to support demand
PE for use in food packaging, stretch film and agricultural film are likely to see steady to firmer demand, while applications for more industrial uses of PE such as pipe grades and chemical containers are also likely to remain generally stable.
The key to supporting PE demand lies in applications with packaging likely to be most supported by recovering economic growth, particularly in China and northeast Asia. In the Asia-Pacific packaging use accounts for 60% of total PE demand.
Plastic converters across southeast Asia continue to hold a pessimistic view on demand for finished goods.
Many noted that the expected demand boost for Lunar New Year packaging and retail products seems to have failed to materialize, given the poor sentiment in major markets such as China.
A revival of regional business and leisure travel could benefit markets such as Thailand and Indonesia, but again, the absence of tourists from China mean that a return to pre-COVID-19 numbers could remain elusive.
“The outlook for packaging remains mixed and challenging to predict,” noted ICIS demand analyst Jincy Varghese.
“Food and energy prices are continuing their upward trajectory, resulting in serious demand destruction. Downstream requirements for packaging, except food packaging, are expected to decline on account of reduced disposable income.”
New supply expected in 2023
While PE demand recovery remains highly questionable, especially in the first half of the new year, supply in southeast Asia looks set to increase further.
One major development could be the eventual restart of downstream PE units from the Saudi Aramco-PETRONAS joint venture Pengerang Refining and Petrochemical (PRefChem) project, which has been shut since late-October 2022.
The cracker and all downstream units at the Pengerang Integrated Complex (PIC) in Johor were shut following a fire incident at the site on 27 October, with no clear timeline for restart.
Current indications are that the plant, which has the capacity to produce 350,000 tonnes/year of LLDPE and 400,000 tonnes/year of HDPE, could re-start in January 2023.
Additionally, 2023 could see the start-up of the Long Son Petrochemical complex, Vietnam’s first integrated petrochemical complex, within the first half of the year.
The project is 100% owned by Thai conglomerate Siam Cement Group (SCG) and has the capacity to produce 450,000 tonnes/year of high-density polyethylene (HDPE), 500,000 tonnes/year of linear low-density PE (LLDPE) and 400,000 tonnes/year of polypropylene, according to SCG.
SCG said in July that the complex was 96% complete, with full start-up expected by the second quarter of next year.
Also, in the Philippines, JG Summit is expected to HDPE production from its new 250,000 tonne/year expanded PE unit in 2023, after delaying the start from a previously scheduled start of Q3 2022.
“An additional increase of 2.7 million tonnes of capacity is expected on-stream for 2023 in Asia and the Pacific,” noted Goh. “Of which, the further ramp-up to Malaysia’s Pengerang Refining and Petrochemical plant and the start-up of Vietnam’s Long Son Petrochemical plant towards Q1 2023 may potentially have a significant influence on PE prices for 2023 as well.”
Author:
Izham Ahmad is a Senior Editor at ICIS and is currently responsible for the polyethylene market in the Asia-Pacific. Izham joined ICIS in 2016 and also covers pricing and market analysis for the ethanol markets in Asia.
Izham is based in Singapore and holds a degree in Economics from The University of Adelaide in Australia. He started his career as a journalist in 1999, while he was then based in Jakarta, Indonesia.
Izham has written a wide variety of articles on finance, economics and energy, and has analysed the impacts of some of the major global events which have taken place since the end of the 1997/1998 Asian Financial Crisis. He has written for various newswire organisations such as Dow Jones and Bridge Information Systems/Telerate. His articles have also previously been published in the Wall Street Journal Asia.
As chemical markets shift quickly, there is a need to act decisively, strive for better, and make changes that drive a difference in the long-term. ICIS is committed to partnering with the industry to optimise the world’s resources, connecting the value chain and achieving efficient and sustainable growth for the chemical industry.
Access to expert insights on the latest industry developments and tracking market changes are vital in making sustainable business decisions.
Built with Shorthand