U.S. petrochemical plants see higher polyethylene demand and prices four months into pandemic

Polyethylene prices saw in July gains for two consecutive months with additional price increases sought for August. Meantime, petrochemical consumption demand recovery related to automotive and durables, as well as for fuel-related products like methanol, lagged.

Dow's plant Freeport, Texas. Image courtesy of Dow Inc.

Four months into the Covid-19 pandemic petrochemical companies in the Americas saw a significant recovery in demand for plastic resins that combined with lower inventories improved some product prices.

Ethylene is the most important organic chemical produced by the petrochemical industry. It is the building block for multiple products from diverse plastics to antifreeze. The leading use of ethylene is to produce polyethylene (PE).

Polyethylene shipments are priced about a month after delivery, when producers and converters end negotiations. The market follows price changes agreed by biggest producers and their buyers.

The U.S. biggest chemical company is Dow Inc.

Dow aims for PE price increases

“We do have pricing on the table for July and August, up five (cents per pound) in July, up five in August. We were successful in getting price up $0.04” in June, said Jim Fitterling, CEO at Dow Inc. during the company’s second quarter earnings call on July 23, referring to polyethylene.

Covid-19 shutdowns affected demand early in the quarter. “And it took a while for the export channel to open up for polyethylene and volumes to start moving back into Asia and other economies,” he added.

“In the second quarter, we saw automotive rates down 50% year over year. They're back in third quarter. They're going to be still below last year, but they'll be about 20% below last year,” he said.

“And some of the other sectors like consumer durables, where they were off 30% year over year in the second quarter, we expect them to come back to about 10% below year over year,” he added.

Margins may get some benefit from raw material costs “because we have seen ethane still stay relatively available. So, the ability to have a good price on ethane as we go through the quarter looks stronger than it did in the middle of the second quarter,” he said.

LyondellBasell also sees PE increases

“Now the $0.04, some of that tends to be realized in July as well. So not all of the $0.04 will be realized in June. And same with the next $0.05 that's being implemented now. It kind of goes across two months,” LyondellBassel CEO Bhavesh Patel said during the July 31 earnings call.

“So the June increase really was underpinned with lower inventories and the return of exports,” he added, according to a transcript of the call by Motley Fool.

“The next $0.05, beyond the $0.04 and the $0.05 that are already kind of implemented, we think, given kind of the backdrop and the improvement in demand, and as I mentioned, strong exports, that $0.05 also has a pretty good chance of going through,” he said.

“Most of the realization will be in Q3 for those increases given kind of how the market works,” he added.

Westlake sees strength in PE pricing

“We've seen price traction really beginning in June and coming through July,” said Steven Bender, CFO at Westlake Chemical Corp.

“With now price nominations of $0.05 in polyethylene in August, the operating rates reflect that strength,” he added.

“There's not a lot of excess inventory in the marketplace,” Bender said.

“So I think there is very good traction in operating rates being elevated and traction in pricing,” he added.

Automotive, high-end polymers yet to recover

Early in the third quarter “we're seeing volumes start to increase. I'd say low- to mid-teen volume increase,” said Mark Vergnano, CEO at The Chemours Company, during the July 31 conference call.

“We've seen price stability from that standpoint. And that's going to help margins just because we're now going to have more utilization on our assets,” Vergnano added, according to a transcript by Motley Fool.

“Think of this as a tale of two very different businesses,” added Mark Newman, Chemours COO.

“Auto is down both in North America and Europe significantly, 40% to 50%, based on the outages we saw in Q2. That snapped back in July. We see auto being revised upward as we come into this quarter,” he said.

“Polymers, on the other hand, is down in line with industrial, kind of mid-teens,” he added. The company produces high-end polymers for uses such as electronics and semiconductors.

Capacity returning in Brazil

“In May, the operating capacity of the crackers in Brazil fell to 64%,” but in June it increased to 75%, said on Aug. 7 Rosana Avolio, investor relations manager at Braskem, according to a Motley Fool transcript.

Second quarter resin sales in Brazil posted a 19% on-quarter decline and a 15% on-year drop, she added.

In the U.S., where Braskem makes polypropylene, utilization rates fell to 88% early in the pandemic but normalized in June, she added.

Pedro van Langendonck, investor relations official at Braskem, anticipated “strong demand growth in the third quarter.”

Third quarter is usually the strongest in the year for demand. Yet 2020 will be overall weaker, about a 6% demand decline, he said.

Covid-19 hit methanol demand

Canada-based Methanex Corp., the world’s biggest methanol producer, said Covid-19 hurt demand. Methanex idled its Titan plant in Trinidad and its Chile IV plant in Chile early in the pandemic.

Methanol can be used as fuel, or additives and is also transformed into olefins, primarily in China. It’s also an intermediate for chemicals like formaldehyde.

“If we compare the second quarter 2020 to the fourth quarter of 2019, we’ll see the full impact of Covid-19 where we estimate that quarterly global methanol demand declined by approximately 12%," said John Floren, CEO at Methanex, on Jul 30.

Prior to Covid-19, annual methanol demand was expected to increase by 3% to 4% in 2020, he added.

In China, methanol demand increased 4% in the second quarter from the first quarter. Outside of China methanol demand saw a 19% on-quarter decline, he added.

By Renzo Pipoli