Petrochemicals demand in 2021 seen supported by low inventories, broader economy reopening

Demand in 2021 for plastic resins including polyvinyl chloride and polyethylene may see support from low inventories in the first months and from a broader economy reopening later in the year as immunization efforts increase, paving the way for an rise in durables consumption.

LyondellBasell's Bayport Polymers Plant. Image courtesy of LyondellBasell.

Top officials from companies including Westlake Chemical and LyondellBasell recently shared thir outlook for PVC and PE demand and prices in 2021. As for profit margins, one Braskem official said they may not be as favorable as they were in 2020 for the Brazil-based company that is also the biggest polypropylene producer in the United States.

A top official at the world’s top methanol producer, Vancouver-based Methanex, said that the pandemic-related developments are uncertain and could lead to different scenarios, including more weakness ahead. There is a need to maintain financial flexibility and liquidity, he said.

PVC seen strong through the winter

Westlake Chemical Corp. sees PVC relatively strong through the 2021 winter and into the spring.

In the second part of 2020 there were gains “to reflect the PVC raw material price increases. And with a strong demand even into the winter season, we’ll see that prices will be maintained,” said in November Albert Chao, Westlake Chemical’s CEO, according to a Motley Fool transcript.

“Typically spring time is a strong building season,” he said. And because of this, there could be inventory building through the winter to prepare for the increased activity in the spring.

For later in the year he anticipated demand support as a result of a low interest rate combined with monetary and fiscal stimulus related to Covid-19.

“Asia is doing quite well, and the demand for polymers are quite strong. And so, the demand globally, export price actually has been going up, especially for PVC, going up quite a lot,” Chao said in November.

Average polyethylene prices seen higher in 2021

Bhavesh Patel, CEO at LyondellBasell, did not anticipate weakness in polyethylene into early 2021.

“We're very, very low levels today, and really kind of hand to mouth on many products, and I suspect that will get us through the seasonally soft period and get into next year,” he said during the most recent earnings call at the end of October.

“The absolute inventory levels are incredibly low today. So I think that points to a tighter market,” he said.
Looking into 2021 and beyond, in China “the new capacity likely won't be enough to meet demand growth. And so they're going to need to incrementally import more polyethylene,” Patel said.

“I don't know about next year (2021), because of timing of projects, whether they're delayed or not. But if I look over the next two, three-year horizon likely, their import needs to grow,” he said.

“if you look at the U.S. next year, there is very little new capacity in polyethylene coming online,” he said.

With the rising demand and limited supply expansion there will be less being exported out of the U.S. and lthat will create a tighter global market, he said.

“So it seems to me that we're seeing, kind of, a classic setup of a cycle here as we said in the trough, starting to see delays, starting to see cancellations and let's assume China brings on all of the capacity that's announced. They still need to import more,” he added.

A recovering economy in 2021 will favor polypropylene

Polypropylene (PP) struggled in 2020, “especially in Q2, because of the higher durable good and auto content,” Patel said.

“As the economies recover around the world, durable goods will likely grow faster” which probably favors PP even more than polyethylene, Patel said.

China was a notable exception in PP during Covid. “PP demand is down year-to-date by 1% to 2% in Europe and U.S., up significantly though in China. So China PP’s demand is up some 15%,” Patel said.

PP represents about a third of all petrochemical products that go into cars so a recovery of the automotive market is very important.

Polymer margins uncertain in 2021

Pedro van Langendonck, Braskem’s CFO, said on Nov. 13 during the company’s latest earnings call that it was difficult to estimate where polymer margins would be in 2021, according to a transcript by Yahoo Finance.

“On one hand demand is likely to see strength but on the other hand some of the suppliers that closed plants or delayed projects in 2020 could return,” he said.

The 2021 spreads “could be lower, especially in polyethylene. Polyethylene this year, we had spreads that were much higher than we expected. So I think there may be some reversal in the PE spreads for next year,” he said.

“When we look at PP and PVC, they are doing pretty well. And I think there it is more solid. I mean there is not a lot of new PVC capacity coming online. We're seeing delays of the new PP capacities coming out every quarter,” he said.

Margins depend also on prices for raw materials and “a lot will also depend on, of course, on the oil price,” he added.

Methanol to remain challenged

Methanol demand was set to increase three million tonnes annually in 2020 but because of the pandemic it actually declined three million tonnes from the previous year.

Asked how he sees that demand ramping back up in the next years, John Floren, president and CEO of Methanex, said he isn’t counting on a quick recovery. Canada-based Methanex is the world’s top methanol producer.

Methanol is mostly used as fuel or solvent. In China it is transformed into olefins to make plastics

“It will take some time to inoculate everybody, and we'll maybe get back to somewhat of a new normal, but I think this is going to be with us for a long time,” he said.

“That's why we've tried to build in as much liquidity and financial flexibility as we can to be ready for all possible scenarios, including reduced demand again, and whatever we might be seeing from the Covid-19 pandemic.”

By Renzo Pipoli