Plastic resin producers slowly advance projects amid capacity increases, weak demand

Dow will continue to hold talks with Canadian authorities over incentives in 2023 with a final decision anticipated by year’s end on a project that would include tripling its ethylene and polyethylene capacity in Alberta, Canada. The work was originally announced on Oct. 6, 2021.

Dow assets in Fort Saskatchewan, Alberta. Image courtesy of Dow.

“In Alberta, we reached a preliminary investment decision for our Path to Zero project, and we are working with the Canadian government to confirm necessary incentives so that we can make a final investment decision by the end of this year,” said on Jan. 31 the company’s CEO James Fitterling, according to a Motley Fool transcript.

Dow had said on Oct. 6, 2021, when it announced its “net zero carbon emissions ethylene and derivatives complex” project, that it planned to triple its ethylene and polyethylene capacity in Alberta while turning the asset into a net-zero emissions complex by capturing releases at the site and then paying for third-party underground storage.

Back in July the CEO of Dow James Fitterling had said during the company´s second-quarter earnings discussion of that year that Dow had advanced as planned on its work for a December 2022 decision.

“Formal resource loading, vendor selection and project investment decisions by year-end all on track,” Fitterling had said at the time.

If company directors approve it, the Alberta expansion would increase Dow’s ethylene and polyethylene global production capacity by about 15%.

Alberta has offered incentives for petrochemical companies that have in the past led to investment in resin production.

Talks over incentives in Canada are taking place against a background of a North American plastic resin market marked by slow demand with significant new production coming online both for polyethylene and polypropylene in 2023.

Dow’s personnel reduction

The slower demand and need to be more competitive has led to personnel reductions at Dow. Reductions were covered in the Jan. 31 earnings discussion.

The “two thousand headcount reduction is not all specific to Europe, although Europe is a big part of the earnings decline that's driving us to take these actions,” Fitterling said during the call, according to a transcript by Motley Fool.

“So, I would say I don't, it's not a haircut (of) 5% of the workforce. It will be targeted. It will be targeted around asset decisions,” he said.

“It will be targeted around. It's not just Dow headcount. We will have contractor reductions as well at the sites,” he added.

Inventories and margins

Dow’s CEO James Fitterling said that resin markets participants are watching new resin capacity.

“We had a pretty strong end of the year in 2021, and in 2022, we kind of reverted more to the normal slower end of the year dynamics. We do have to keep an eye on capacity coming on (…)” he said.

Separately, Mark Lashier, president and Chief Operating Officer at Phillips 66, said that resin producers may have already seen bottom in terms of polyethylene profit margins.

Market participants have described slower demand in North America both for polyethylene and polypropylene in part related to slower economic growth, and in part due to inventory buildups.

“The polyethylene value chain margins kind of hit bottom. Those producers that were really squeezed pulled back on production. So, you can see that clearly we've hit a point where there's great discipline and nobody is going to operate while they're bleeding cash, and we've kind of passed through that period,” Lashier said, according to a call transcript by Motley Fool.

However, a market participant had said in mid-January that new plants like Shell for polyethylene in Pennsylvania and InterPipeline’s new polypropylene complex near Edmonton, Alberta, may run at near full rates as they seek to displace less efficient production by competitors, including those abroad that rely on naphtha.

“Margins have modestly ticked up. And you'll continue to see as the capacity that's coming online in North America gets digested, we'll be at that bottom for some time, but then start to work our way out because demand globally continues to increase,” Lashier added, according to the Motley Fool transcript of the call.

ExxonMobil’s chemicals strategy

Darren Woods, chairman and chief executive officer at ExxonMobil, discussed plastic resins during his company’s most recent earnings discussion and mentioned “large capacity additions coming on at the same time where you've had some demand slow down.”

“It will take a little time for that demand to pick up and fill that capacity (...),” he said, according to a transcript of ExxonMobil's fourth quarter earnings discussion by Motley Fool.

ExxonMobil’s projects related to plastics are being carried out. “We're bringing those back on basically in line with the plans that we've laid out in the pandemic,” he said.

“So, we just brought on the polypropylene unit in Baton Rouge. We've got our Baytown, Vistamaxx, and LAO (linear alpha olefins) projects, which we anticipate coming on here middle of this year. And then China one is making really good progress, and expect that to come on in 2025.

“We build world-scale facilities, start them out on commodity grades, and then quickly upgrade those and fill transition to performance products,” said Darren Woods.

Exxon Mobil owns 584,000 barrels-per-day of refining capacity in Baytown. Baytown is the second biggest refinery in the U.S. after the Motiva-owned refinery in Port Arthur, Texas.

By Renzo Pipoli