U.S. polyethylene increasingly pushed out as exports after shipping constraints eased
U.S. polyethylene producers have since late last year and into the first quarter of 2023 been seeking out export markets in a way that had not been done during the pandemic and post-pandemic periods, following the easing of shipping and supply chain problems, and even as profit margins abroad aren´t as attractive as those for product sold within the U.S.
“Weaker demand caused us to shift more of our North American polyethylene and PVC resin sales volumes to export markets, where pricing and netbacks were lower than our traditional domestic market channels,” Steve Bender, Chief Financial Officer of Westlake, said during the company´s recent earnings discussion in February.
Faced with much added polyethylene capacity in North America in recent years, including the 1.6 millones tonnes per year polyethylene plant in Pennsylvania started up last year that will see full running rates in 2023, some plants have lowered running rates, or sought alternatives to lower prices.
“These headwinds were partially offset by higher production and sales volumes for polyethylene,” Bender said, according to a transcript of the call by Insider Monkey.
Officials from LyondellBasell and Celanese also reported increased attention to exports amid a glut in output. U.S. resin producers await a return of demand growth for resins in China to help take the new capacity added in recent years.
Weaker U.S. demand hurts resins
In the U.S., building and construction markets were particularly impacted by rising interest rates, with housing starts declining by approximately 22% year-over-year in December, Westlake officials shared during their earnings presentation.
Average selling prices for PVC and polyethylene fell sharply in the fourth quarter, the company said.
In the case of PVC resin, customer inventory de-stocking led domestic sales volumes to decline faster than end-use demand levels, Bender said.
Some converters of plastic resin commodities that during Covid and the post-pandemic period had kept large volumes of stock, in anticipation of possible supply-chain problems, in the fourth quarter of 2022 just reduced their inventories. This hurt demand and prices.
Demand return after de-stocking
“I would say the destocking that we talked about, we felt it pretty hard in polyethylene and PVC, both on the domestic market in the U.S.,” said Roger Kearns, chief operating officer at Westlake Chemical, according to a transcript of the call by Insider Monkey.
“So we shifted a tremendous amount of our material in Q4 to the export markets in both of those. And what we’re seeing in Q1 is, I would say, a return to a bit more normal numbers that we would see. So I think through January and February so far, we’re seeing a little bit of a rebound on the domestic side,” he said, referring to the U.S. market.
The company is seeking a cumulative total of about 10 cents per pound price increase in PVC resin in the first quarter of 2023.
As for the polyethylene price direction, Albert Chao, president of Westlake, said the company had an additional $0.03 to $0.05 a pound price announcements in February to “try to recoup some of the price decreases that occurred last year.”
Chao expressed optimism on a return of Chinese demand growth levels that preceded the Covid pandemic.
LyondellBasell had plants at 75%
“I would say we’re seeing in Q1 and based on the North American advantage, both PVC and polyethylene can run strong,” said Roger Kearns, when asked about the operating rates of Westlake Chemical plants in the current scenario.
LyondellBasell’s executive vice president of global olefins and polyolefins Ken Lane, while discussing his company earnings on Feb. 3, 2023, said his company plants operated at a 75% capacity in the fourth quarter of 2022.
This was because “market demand declined, and we also saw customer destocking during the quarter,” he said, according to a transcript by Insider Monkey.
On China’s demand growth recovery
“Our view for the last two years is the demand for polyethylene in China has been relatively flat. So when you talk about a range of outcomes for 2023, if you look historically, after two years like that, you would expect to see a significant snapback in growth, but it doesn’t mean that that’s a guarantee. So you could see anything from flat to plus 8%. It’s very hard to call,” Lane said.
“That’s why that’s one of the markets that we watch very closely just because it is largely the price that are in the market. And will drive the absorption of all the new capacity that has come on,” Lane said.
Lori Ryerkerk, CEO at Celanese, said decreases in natural gas prices contributed to decreases in plastic resins prices, according to a transcript of the call by Insider Monkey.
Resin buyers anticipated declining prices and they opted “to draw down their inventory in anticipation,” Ryerkerk said, also discussing fourth quarter 2022 earnings in February.
“We saw a lot of build of stock in 2022 because people were worried about getting resin. I think we see, going forward, people feel the supply chain issues are larlargely resolved,” she said.
In addition to Shell´s plant scheduled to produce commercial, full-capacity rates this year of ethylene and polyethylene, there are other investments related to polyethylene, as well as to polypropylene that have increased North American supply in recent years.
By Renzo Pipoli