LyondellBasell sees tight chemical markets into 2022: CEO

LyondellBasell sees polyolefin markets remaining tight through into 2022 as customer demand outstrips production, CEO Bob Patel said April 30.

"We expect markets will remain tight through at least the end of this year due to very high demand, low inventories and the capacity that will be lost during planned downtime," Patel said during the company's first-quarter earnings call. "With customer demand exceeding production, the full extent of our customers' backlogs, deferred consumption and unmet demand are unknown."

LyondellBasell entered 2021 with low inventories and increasing demand from a global economy recovering from coronavirus pandemic-related restrictions.

A deep freeze that forced widespread petrochemical shutdowns along the US Gulf Coast and inland in mid-February wiped out weeks of production and further depleted inventories, he said. Logistics constraints exacerbated that situation with container shortages and escalating freight rates in Asia, limiting arbitrage opportunities.

While China remains structurally short of polyethylene, US exports to China "have vanished" as North American suppliers focus on restocking and clearing order backlogs for domestic customers, Patel said.

"We believe that tight global markets are likely to persist well into the second half of this year, and continued improvements in mobility and associated economic activity could sustain strong volumes and margins into 2022," he said.

The company reported net income of $1.07 billion in the quarter, up 45.4% from $736 million in Q1 2020.

Operations at near-full capacity in 2021

Patel said the company expects to operate at nearly full capacity worldwide to meet growing demand expected to persist amid low inventories and maintenance downtime. He said global demand for polyolefins has grown by 14% over the past two years, above long-term trends of annual polyethylene and polypropylene demand growth of 4% and 5%, respectively.

US PE contract prices have rose by $950/mt from May 2020 through March, with more than $300/mt of additional price increases on the table for April and May.

"As demand should get even stronger as we progress through the recovery, we expect tight markets and strong margins for polyolefins to persist into next year," Patel said.

Polyethylene is used to make the world's most-used plastics, from trash bags and milk jugs to shampoo bottles and cookie packaging. Polypropylene's uses include more durable plastics, like dashboards and door panels in vehicles, plastics in appliances and carpet backing.

In 2020 LyondellBasell acquired a half-share of Sasol's new ethane cracking and polyolefin capacity in Lake Charles, Louisiana, and pre-pandemic, the company aimed to sell its share of that output in Europe and China while supplementing US supply.

That plans remains, but Patel said that post-freeze, spot sales "have been zero," as LyondellBasell has allocated tight output. Other producers have done the same, largely limiting export volumes to contract customers.

"Our focus in the near term will be to meet domestic demand," he said, "We still don't know what level that demand is because of the supply constraints. And then we'll look to resume exports."