American plastic resin producers find price weakness in middle of 2022 as inventories increased

American plastic resin producers reported in mid-2022 weaker sales revenue and earnings on the back of declining prices for some resins, particularly when compared with a 2021 market impacted by reduced inventory due to both summer and winter events in that year.

A petrochemical plant owned by Dow in Plaquemine, Louisiana. Image courtesy of Dow.

Dow, a leading U.S. producer of polyethylene which is the most traded plastic resin and found in items like milk jugs or shampoo containers, said that its EBIT (earnings before interest, taxes) for the second quarter fell to $1.4 billion compared with $2 billion in the year-ago period, according to a late July earnings discussion.

The comparison looked big because the 2021 second quarter “was elevated due to weather-driven events,” said Jim Fitterling, CEO of Dow, according to a transcript shared by the company in late July.

In February 2021 there was winter storm Uri in the U.S. Gulf Coast. In both the summer seasons of 2020 and 2021 there was hurricane activity that in some cases led to extended power outages.

U.S. inventories

The Midland, Michigan-based company said some areas outperformed. Dow´s performance materials and coatings segment reported EBIT of $561 million, a $336-million increase from the previous year. Margins expanded “primarily due to price gains for both silicones and coatings applications,” Fitterling said.

But polyethylene didn´t do as well and this was in part because of expanding inventories in 2022 in the absence, so far as of mid-August, of weather events. However, the 2022 Atlantic Hurricane Season that started in June only ends in November.

“Inventories in the U.S. were impacted by two things. Half of the increase in inventories in the U.S. was due to supply chain congestion that was really holding up product exiting the ports down there. Most of that was already packaged and set up for export,” Fitterling said.

“The other half, we have to remember that there was some turnaround season. It was pretty heavy in the second quarter, and we've got hurricane season upon us in the third quarter here. So we usually try to build some inventories ahead of hurricane season just to be ready,” he added.

There's still supply chain congestion at the ports and “we're still working through that,” Fitterling said. He anticipated a one-cent reduction for the July-September period for U.S. polyethylene compared with the second quarter.

“We have good integrated margin outlook for the U.S. Gulf Coast in the third quarter, similar maybe $0.01 lower than what we had in the second quarter,” he said.

The U.S. polypropylene market

The biggest polypropylene producer in the U.S., Brazil-based Braskem, reported a sharp decline in its second-quarter profitability as U.S. polypropylene margins contracted.

Compared with second quarter 2021, EBITDA in U.S. dollars was down 55% due to a “normalization of international spreads for resins in Brazil, polypropylene in the U.S. and Europe, and polyethylene in Mexico,” Braskem´s investor relations official Rosana Avolio said.

Sales volumes fell in Brazil and production declined as well. The company´s Brazilian assets operated at 74% of capacity in the April-June period of 2022 due to a scheduled maintenance shutdown at its Rio Grande do Sul petrochemical complex.

Polypropylene margins

As for polyethylene spreads, naphtha and gas-based, “the expectation for the second half of this year is for lower spreads in relation to the first half of the year, mainly because of the new capacities coming online in the period,” Avolio added.

North America will see four million tonnes of polyethylene capacity as soon as by year´s end. Large part of that added capacity, 1.6 million tons per year, is Shell´s new plant in Pennsylvania, just completed in early August.

On the other hand, as for North American polypropylene spreads, they will be similar, she said.

“U.S. PP (polypropylene to) propylene spread should remain at levels in line with the last quarters and above the recent historical average,” Avolio said.

Significant new polypropylene capacity won´t likely enter the market until later this year in part when InterPipeline is scheduled to start up both its new PDH and its polypropylene plant near Edmonton, Canada.

Only half of the complex has started so far as of August. Both components of the project, a PDH plant and a polypropylene plant, will be running before the end of the year, the company has said.

By Renzo Pipoli