North America PE Market Dynamics
Market Becomes Increasingly Competitive as New Capacity Starts Up.
Will Demand be at The Tipping Point?
Polyethylene producers in the region have enjoyed a lengthy uninterrupted, robust integrated margin strength since the industry hit a multi-year low. The margin momentum and strength which we have seen since, were driven by multiple factors, including strong domestic demand that grew last year; Snug market conditions that were aided by planned and unplanned outages; Supply constraints that were associated with rail car shortages. Advantaged freight costs which have limited the import of finished goods and expanded margins on export volumes. We also saw a shortage of comonomers, namely hexane and octane (to some degree), as well as some slip agent materials used to produce certain grades of PE. These issues help support the strong margins that the industry has enjoyed for the last several quarters.
We expect the robust market dynamics of recent quarters to change in the near term as new capacity starts up and the market becomes increasingly competitive. Feedback from the market indicates that demand may be near a tipping point. Reports are that inventories are accumulating at brand owner warehouses, as well as with some processors. Processors have indicated that they’re having difficulty passing on the latest price increases. We believe that inflation and a slowing economy will begin to have an impact on demand. This impact has not been registered with the latest industry statistics, but we believe it is on the verge of developing. PE exports continue to be constrained by logistics somewhat, which may also limit operating rates.
The bottom line is that we believe PE prices are at or near a peak for this cycle, and we expect to see price and margin pressure develop in the very near-term.
Vice President, Global Plastics and Polymer Team Lead
Chemical Market Analytics by OPIS, a Dow Jones Company