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Commodities 2021: Global polyethylene markets expecting oversupply in H1 2021


New Asian capacity, restoration of US output post-hurricanes increasing output

Coronavirus uncertainty leaves demand expectations unsettled

Houston — Global polyethylene markets were expected to enter 2021 facing oversupply, much like that seen in early 2020, which could soften prices that soared when output tightened amid a one-two punch from 2020 hurricanes that hit the US Gulf Coast.

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New capacity was on tap to start up in Asia, in addition to restoration of normal rates in the aftermath of US hurricanes that hit Southwest Louisiana and Southeast Texas in August and October.

While PE demand has been largely resilient throughout the global coronavirus pandemic, overall softness compared to pre-coronavirus levels was largely expected to linger as regions struggle with infection surges and continued unemployment.

"As we head into 2021, the numerous plant outages that started in the US Gulf Coast with Hurricane Laura and then expanded globally will come to an end," said Rob Stier, senior lead of petrochemicals for S&P Global Platts Analytics. "As capacity returns to the market, supply will increase and prices will come under pressure."

Asia expecting stagnant demand growth

In Asia, about 5 million mt/year of new capacity was on tap to start up by the end of 2021, though some could be delayed. While that new capacity could create oversupply, sources said idling old, inefficient plants and lower global run rates could balance the market.

Asian market sources expect stagnant demand growth in the first half of 2021, with slowed spending caused by the pandemic.

However, demand growth was expected to rise by 4 million mt throughout the entire year, according to S&P Global Platts data.

Asia's projected PE output deficit was 18 million mt/year in 2021, with demand seen at about 61 million mt/year, according to Platts Analytics.

Of that net deficit, more than 8 million mt/year was HDPE, 6 million mt/year LLDPE and 4 million mt/year LDPE.

Asia PE demand in packaging, consumer and healthcare markets was expected to remain resilient in 2021. However, demand may remain weak for other sectors amid lower exports of finished goods and cash flow problems, leaving the overall pace of demand recovery uncertain in 2021, sources said.

Traders said the various economic stimuli by governments that had some effect in propping up markets were slowly running out, and export demand for finished plastic goods in Europe and the US were not seen recovered in early 2021.

Some sources expect normal demand to return by Q3 2021 at the earliest.

Traders also said they needed to review short- and long-term supply security in the aftermath of coronavirus lockdowns, including strategic stockpiling, just-in-time manufacturing, product diversification and incentivizing product substitutes

However, a container shortage in Asia and high freight rates were likely to reduce imports to India in early 2021, supporting prices there. Sources said India's manufacturers could increase prices through early February, when import flows were expected to gradually resume normal levels

Europe sees weak demand, tightening supply

The European polyethylene market was expected to be pulled in opposing directions by a combination of weak demand and expectations of tighter supply heading into 2021, amid stable pricing.

Converters and some traders were confident of gaining larger discounts on expectations of weaker demand amid a spate of second-wave pandemic restrictions, growing unemployment and expectations of a worsening macroeconomic picture.

At the same time, prolonged disruption from Hurricane Laura's August assaults was still limiting production -- and exports -- in late 2020. European producers were filling that gap by shipping PE to Asia, Latin America and Turkey.

Reduced European supply and more attractive export netbacks to those markets enabled domestic producers to maintain export volumes at better prices than they could achieve domestically, tightening supply further.

That said, market sources acknowledged that prices in Europe, already the lowest-priced region, could not to go any lower.

US sees continued uncertainty

US PE market participants expect pricing to weaken in the near term as more coronavirus-related shutdowns or restrictions impact the global economy.

"It's just so hard to pinpoint exactly but directionally I think we'll continue to move down products and start to connect the dots with these other overseas markets during the new year again," one export supplier said.

The US in Q4 2020 added new LDPE capacity from Sasol and Formosa Plastics USA after repeated delays, and aims to fully ramp up PE exports in the first half of 2021. Both plants combined will add 820,000 mt/year of capacity.

US PE prices and margins were expected to come under pressure as the region seeks to manage excess volumes and compete in foreign markets, sources said.

"The US will return to a major PE exporter and will have to lower prices to sell into international markets," Platts Analytics' Stier said.

Producers were expected to increase output as well, resulting in thinner spreads and lower US PE margins, according to one PE executive source.

"There's going to be a lot of headwinds over the next 12 months," the source said.