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Global PE markets in 2019: Was it the tip of the iceberg?

by Esra Ersöz -
  • 20/12/2019 (10:50)
PE markets hit the lowest levels of the past ten years in the last quarter of 2019 in Asia, Europe, Turkey and Africa, after having spent the second half of the year mostly in a downtrend. The last time PE prices saw such low levels back in 2009 was followed by a prolonged uptrend. Now that PE markets are slowly firming up, the question is whether this recent firming will be sustained like ten years ago or a cloud will continue to hang over the PE markets in 2020.

Wrestling with excess supply

Needless to say, it was excess supplies that weighed heavily on PE markets across the globe in 2019. After losing the Chinese market as a crucial export outlet, an influx of US PE cargoes has primarily found home in South America. The rest has flooded Southeast Asia, Europe, Turkey and Africa, and contributed to the decade-low prices across these regions.

Statistics reveal that US PE exports already exceeded 8 million tons in the first ten months of 2019, which is a fresh record. The year is likely to end with an increase of more than 20% year-over-year, considering the aggressive destocking of US producers in the last quarter.

Given the imminent start-up of LyondellBasell, Formosa and Sasol with a cumulative capacity of more than 1.5 million tons, PE production is set to rise in the US. Besides, there are more PE plants under construction in the thick of excess ethane supplies. That is to say, US PE exports will continue to mount in the coming years.

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Was it all US PE’s fault?

Not only US PE seeking home in global export outlets with attractive prices, but also new capacities in Asia have contributed to excess supplies in major regions.

More than 10 million tons to come, two third in China

China was expected to add more than 5 million tons of new PE capacity in 2019 and more than 3 million tons of new capacity is scheduled to come online in 2020.

Russia was also planning to add around 2 million tons of new PE capacity while Malaysia is scheduled to finish adding more than 1 million tons of PE capacity within 2020.

Although there can/could be delays in the start-up phase of these new PE plants, it will not take so long to see they will start running commercially.

Supply to continue to outweigh demand globally

In 2019, supply by far outpaced demand, which led to the levels not seen since the 2008 crisis. This picture may not change in 2020 and demand may remain depressed in the midst of excess supplies, new capacities as well as slower economic growth across the board.

Although the recent trade truce regarding partial tariff exemptions for US PE imports to China is bolstering some hopes about normalizing market conditions and better demand, markets are likely to stay extremely cautious.

Will PE improve even as trade truce is achieved?

Even if the doors of China may open to US PE imports completely, the pressure from supplies will not be any less.

On top of growing domestic capacities, the competition is likely to become fierce this time between the US and Middle Eastern suppliers, who have been dominating China’s import PE market. This may continue to result in price erosion and push PE suppliers to search for better netbacks in alternative export outlets.

Which market will be more favorable for PE exporters?

Asian PE suppliers have already been facing poor margins due to their naphtha-based cracking and relentless price-cuts throughout 2019. Although similar factors have weighed on Europe, margins are still positive for PE producers given more saturated and balanced market dynamics in the region.

Therefore, more PE exports may head to Europe as suppliers may want to benefit from better netbacks and take more share of this market in 2020.

Game is changing in PE markets

Even though PE demand is expected to grow, it is not expected to cope with this excess supply next year, unlike what happened 10 years ago. Therefore, it is probable that the trade-routes will shift, competition will remain fierce and players will need to be highly wary of changing market fundamentals.
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