With more than 2.675mn t/yr of new North American polyethylene (PE) capacity set to ramp up in the first half of 2023, US PE prices could come under further pressure as producers struggle to export the additional resin.
Shell Chemical's new 1.6mn t/yr PE plant, which began operations in November but which will continue to ramp up in the first half of 2023, is expected to be the biggest market disruptor. The plant is located in Monaca, Pennsylvania, within a 700-mile radius of 70pc of US PE converters, offering a shorter supply chain option for many US converters who must otherwise source resin from the US Gulf coast. Sources have said the company is already offering aggressive pricing for contract volumes in 2023 in an effort to gain market share. Shell didn't immediately respond to a request for comment.
Additionally, Bayport Polymers new 625,000 t/yr high density polyethylene (HDPE) unit is expected to start up in the first quarter of 2023, followed by a new 500,000 t/yr linear low density polyethylene (LLDPE) plant at Nova Chemicals' site in Sarnia, Ontario, sometime in the first half of the year.
The new plants add about 10pc to production capacity in the US and Canada combined. Although it will take some time for all of those units to ramp up to full capacity, buyers are anticipating the additional resin will mean, at a minimum, some attractive spot offers, but it could also lead to lower contract prices.
"I would think under normal circumstances, we will see another 3-5¢/lb down in the first quarter because of the new capacity," said one buyer.
US PE contract prices were largely down by around 4¢/lb in 2022 through November. Prices rose by 7¢/lb in the January to June period and then fell by 11¢/lb through November. Many buyers have seen additional non-market adjustments that have taken their overall contract prices even lower.
With December contract prices largely expected to settle flat, some US producers are pushing for higher prices as early as January, arguing that the impact of the new capacity will not be felt until much later in 2023 or even 2024. Multiple producers have said they expect a price rebound in the first quarter as buyers are forced to return to the market to replenish inventories at the beginning of the year.
"My outlook for 2023 is positive by mid-year next year," said one producer. "Globally the market has reached the bottom already. Everyone is waiting for one piece of good news. When that good news comes, the market will rebound and everyone will jump in to buy, but there will be no inventory, so prices will go higher."
Other market participants are not as optimistic, with many anticipating economic weakness in the first half of the year. Additional headwinds include a stronger dollar, which has made US exports more expensive in many countries, as well as some ongoing logistics challenges, including congestion at packaging warehouses.
"I think demand is going to continue to be down on export. There are currency issues, all kinds of stuff.I don't see anything coming back until maybe later next year."
Price direction will likely be largely determined by how much resin producers are able to export. If producers can export close to 40pc of output, including the new capacity, it is possible that the lower prices can be confined to the spot export market. If not, buyers will be pressing for lower contract prices in 2023.
