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Dow sees strong demand swallowing new PE capacity: CFO

Highlights

New US PE capacity expected to start up in Q4 2021 and early 2022

Export and domestic PE prices have inched down

Dow Chemical expects continued global polyethylene demand strength to outstrip additional supply slated to start up in the coming weeks, CFO Howard Ungerleider said at an energy conference Dec. 1.

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"I'm of the view that demand is going to continue to be strong and that will eat up additional supply," he said during Citi's Basic Materials Conference.

That new supply includes 1.3 million mt/year of new linear low and high density PE capacity at Exxon Mobil and SABIC's joint-venture petrochemical complex slated to come online before year-end. Shell Chemicals also plans to start up a new complex in southwestern Pennsylvania in H1 2022 that will include 1.6 million mt/year of LLDPE and HDPE capacity.

US producers also reduced PE exports over the summer months to rebuild inventories left thin after a deep freeze that hit the US Gulf Coast in mid-February prompted weeks-long shutdowns that thinned stocks. Export prices that had reached record highs began falling ...

That supply recovery was seen by some market sources as a tipping point to bring prices down. Export prices that had reached record highs began falling in Q4 2021.

Domestic prices also fell 5 cents/lb ($110/mt) in October, and November discussions of an additional 5 cents/lb decline had not yet settled as of Dec. 1.

"We'll see what happens," Ungerleider said. "What I would tell you is if you look at global demand in November and you look at global demand versus October, it's up double digits. December is too early to call."

Dow's orders for December were higher than those for November, which bucks a typical slowdown from mid-November through year-end, he said. Ungerleider said 2021 PE demand was expected to be a "5% kind of demand-growth year," and a GDP forecast in the 4.5% to 5.5% range will drive the need for more supply.

He also said the outlook for 2022 "really does come down to demand growth," though margins may decline from levels that were "well above normalized" in 2021.

"Potentially, next year, the industry might get there in a different way with slightly lower margins but more capacity, more volume to sell," he said, assuming 2022 does not bring the level of unplanned outages seen in 2021.

Polyethylene is used to make the world's most-used plastics, from shampoo bottles and milk jugs to grocery bags and food packaging.

Regarding supply chain logjams, Ungerleider said he sees a container squeeze easing in 2022, but inflation and high freight rates will linger.

He said a tight labor market has hiked costs, "and that is going to be sticky." Also, he said it is easier to build new containers than to build more ships to move them, "so you'll probably get an easing on the container demurrage before you get an easing on your freight rates because new ships take three to five years to get really substantive new ships in."