Metallurgy / Chemicals / Rubber & Plastics

Increased production capacity has increased oversupply

According to the latest news from Axioms, the global polyethylene (PE) market has already fallen into a dilemma of oversupply in 2019 due to the impact of the US's rampant production expansion, and it will face greater excess pressure in 2020. Moreover, more new PE production capacity will be put into production one after another, and the profits of PE producers will continue to remain sluggish.

Capacity will still increase substantially

According to the supply and demand data of Axioms, in 2019, the world added 6.95 million tons/year of PE production capacity. This includes the U.S. newly added 1.16 million tons/year of linear low-density polyethylene (LLDPE), 820,000 tons/year of low-density polyethylene (LDPE) and 860,000 tons/year of high-density polyethylene (HDPE); Russia Newly added 800,000 tons/year of LLDPE and 700,000 tons/year of HDPE; China added 600,000 tons/year of LLDPE and 600,000 tons/year of HDPE; Malaysia added 350,000 tons/year of LLDPE and 400,000 tons/year Tons/year of HDPE; South Korea added 200,000 tons/year of LLDPE and 200,000 tons/year of HDPE; Iran added 140,000 tons/year of HDPE; Azerbaijan added 120,000 tons/year of HDPE.

In 2020, the world will increase 8.825 million tons/year of PE production capacity: China will add 1.825 million tons/year of LLDPE and 2.985 million tons/year of HDPE; the United States will add 550,000 tons/year of LLDPE and 1.05 million tons/year Annual HDPE; Oman added 440,000 tons/year of LLDPE and 440,000 tons/year of HDPE; Indonesia added 400,000 tons/year of LLDPE; Russia added 400,000 tons/year of LDPE; Philippines added 250,000 tons/year Tons/year of HDPE.

The price war has started

In the context of slowing economic growth and the US-China trade war, the PE price war has begun. The profit margin of PE production is declining, especially in the Asian market.

In 2019, the export volume of new capacity of PE producers using shale gas as raw material in the United States has been increasing. As tariffs in this key market of China are as high as 30%, US PE producers have been looking for new markets to increase their export share in other regions such as Asia, Africa and Europe. US PE producers are not hesitating to cut prices in order to increase exports, and price wars have begun in some regions. At present, the price of PE has fallen to the lowest level since the 2008 financial crisis.

The US integrated PE producers using ethane as the raw material enjoy the lowest raw material costs in the world, so there is room for further price reductions while still maintaining profitability. However, the situation of Asian naphtha cracker operators is different. Their ethylene and PE production profits have fallen sharply, and even slipped to a loss range, which may have fallen to the lowest level in the past 10 years. Cracking plant operators are considering reducing plant operating rates.

In January 2020, the outlook for the Asian PE market is still bearish, mainly due to the following factors: one is the sluggish demand for PE; the other is the destocking of manufacturers; and the third is the new construction of the American Enterprise Product Partnership and Navigator in Morgan Point, Houston Waterway. PE export terminal put into use.

In Europe, although PE producers are also affected by the inflow of US PE, their profit margins are still positive. However, on December 6, ExxonMobil shut down a cracker located in France. The company said that PE production has been affected by many external factors, which have brought huge financial pressure to it.

Increased oversupply

Market participants predict that in 2020, the global PE production capacity growth rate will accelerate, because China will replace the United States as the main country for PE production capacity growth. Although some projects in China may be postponed, the global PE market may still face the dilemma of increasing oversupply. Especially if downstream demand growth continues to slow down, this situation will become more prominent.

Analysts believe that although China and the United States have reached the first phase of the agreement, which is conducive to chemical trade to a certain extent, the slowdown in global economic growth will still exert pressure on the PE market.