US polyethylene (PE) prices are expected to continue to fall in the first quarter of 2022 as global supplies rise, exports remain challenged by logistics, and the market looks ahead to further capacity expansions.
The US PE market through November had not yet fully recovered from production losses caused by a February freeze that shut production throughout much of the US Gulf coast, as well as hurricane activity in August and September. PE plants in November operated on average at around 86pc of total capacity, according to preliminary data compiled by Vault Consulting for the American Chemistry Council's Plastics Industry Producers' Statistics Group. Production in 2021 through November was down by 2.8pc from the same period in 2020 year, but output is creeping closer to normal.
Feedstock ethylene prices in the US have fallen well below global prices since mid-September, which should incentivize US producers to run PE plants hard. Even after a rebound in US spot ethylene prices to $821/t on 17 December, US prices are still $610/t and $209/t lower than prices on an fob northeast Asia and del NWE pipeline basis, respectively.
But concerns about rising inventory levels and challenging export logistics could keep plants from reaching typical operating rates of at least 90pcof capacity by the end of 2021.
Tight supply caused by capacity losses early in 2021 helped producers push US PE contract prices up by more than 36¢/lb, depending upon grade, between December 2020 and September 2021. But as operations improved in the fourth quarter, prices began to fall, with US PE contracts easing by around 10¢/lb on average from October through November, with expectations for another 5¢/lb decline to come before the end of the year.
US export PE prices also rose steadily in the first quarter of 2021. For example, linear low density polyethylene (LLDPE) butene export prices rose by around 39¢/lb from mid-November 2020 through mid-April 2021. Since mid-April, LLDPE export prices have eased slowly, retreating by around 16¢/lb by mid-December.
Logistics challenges, including limited warehouse space, lack of trucking capacity to move exports to ports, and limited container space on ships has made exports challenging for much of the year. Exports have been increasing in the past few months and are expected to jump further in December, but ongoing logistics challenges are expected to keep US producers from being able to ship out as much product as they would like. That could add further pressure to domestic prices as inventories grow.
New production to pressure prices
New capacity coming online in the first half of 2022 will eventually begin to pressure prices even lower, particularly if logistics challenges continue as expected and producers struggle to push material out through exports.
The Gulf Coast Growth Ventures project, a joint venture between ExxonMobil and Sabic located near Corpus Christi, Texas, began startup in the fourth quarter of 1.3mn t/yr of LLDPE and metallocene LLDPE. The project will continue to ramp up run rates in the first few months of 2022.
In the first half of 2022, Bayport Polymers, a joint venture between TotalEnergies and Borealis,is set to add about 625,000 t/yr of high density polyethylene (HDPE) capacity in Bayport, Texas, while Shell is to add 1.6mn t/yr of new HDPE and LLDPE capacity in Monaca, Pennsylvania. Additional projects are planned for late 2022 or early 2023.
Most of the impact from new production capacity will not be felt until the second half of 2022, but the Shell project in particular is expected to disrupt the market once it is fully online. That project is targeted at US buyers, rather than the export market, which would take some market share away from existing US producers, and likely spur further price competition among US producers.
The amount of the impact will likely depend on how quickly logistics challenges can be sorted out and exports can ramp up to more typical levels.
