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US PE starting to flood SEA, Europe upon closed door to China

  • 30/11/2018 (08:59)
In 2017, around 3.5 million tons of new PE capacity came online with Chevron Phillips and ExxonMobil respectively having 1 million tons and 1.3 million tons of it. Accordingly in 2018, increasingly more US PE cargoes have shown up in export markets mostly at competitive prices.

New capacities boost PE exports from US

Statistics from International Trade Center also affirm that exports from the US were up by 15% for HDPE and by 32% for LDPE and LLDPE in January-September on a yearly basis. The main export destinations for US PE continued to be South America and China.

US PE was not destined for China

The excess supply from the new capacities was originally and largely expected to find its way to China, where buying appetite for PE is still estimated to grow albeit at a slower pace. However, the trade war that officially kicked off in June between the US and China appears to have changed the rules of the game.

Statistics evidently show a drop in US PE exports to China throughout the third quarter. Monthly exports were gradually down by as much as 82% for HDPE and 33% for LLDPE and LDPE in September when compared to the end of the second quarter.

Are trade routes changing?

As the door to China was closed at the beginning of the summer, US PE exporters started to look for alternative outlets. Particularly after August, increasingly more PE offers from the US started to appear in Europe and Southeast Asia (SEA) at comparatively competitive prices. Data from International Trade Center also confirm that US PE shifted its direction to Europe and Southeast Asia.

US PE exports to Europe and SEA more than doubled

In 2017, only around 1.5% of more than 2 million tons of HDPE exports of the US was made to SEA and 2.5% to Europe. Likewise, only around 1.9-2% of more than 1.8 million tons of LLDPE and LDPE exports of the US was made to SEA and Europe individually.

In 2018, the picture changed mostly in the third quarter upon the closed door to China. The share of Europe and SEA in US HDPE exports in the first three quarters doubled to form more than 4% of the overall exports separately. The share of these two regions in overall LLDPE exports more than doubled to hit respectively 5.2% and 5.6%.

Year-end destocking prompts more aggressive exports from US in Q4

Although these ratios are still minimal with respect to the overall exports of the US, they are expected to increase further in the last quarter considering the year-end destocking activities and finalize the year with a visible rise when compared to the previous year.

US PE offers to Southeast Asia have already been offering a competitive edge since August while US LLDPE offers to Turkey have recently broken below the $1000/ton CIF threshold.

Will more capacities mean more pressure from US in global PE pricing?

In addition, there are many more new capacities scheduled to start up in 2018, 2019 and 2020.

Formosa was planning to start up its 800,000 tons/year HDPE/LDPE plant in the second half of this year while Dow was to commence production at its 125,000 tons/year HDPE/MDPE sites in 2018. Sasol was also planning to launch 890,000 tons/year LDPE/LLDPE plant in the second half of 2018 or early 2019. There are three more plants readying to come online in 2019, 2020 and 2021.

Given this fact, an influx of US PE cargoes are likely to find their way to major regions like Southeast Asia, Europe, Turkey and also to Africa and continue to expand their shares gradually in these markets.

US is not the only one in the game

Not only the US, but also there are other new capacities coming on stream in these major markets. In Southeast Asia, PTT already started up a new LLDPE/mLLDPE plant in Thailand in 2017 while Petronas is readying to commission its 750,000 tons/year mLLDPE plant in Malaysia by the middle of 2019 and Chandra Asri is planning to start up another LLDPE/mLLDPE plant in Indonesia by 2020. This suggests that there will be competition from regional and nearby sources of supply.

Competition heating up in the PE market

China also added several coal-based PE capacities in 2017-2018 and is planning to start up a few more in the next few years. When demand in China is not good enough, Southeast Asia will be the nearest export outlet for Chinese producers to relieve stock pressure.

Needless to say, there were also major projects in the Middle East including Sadara and Petro Rabigh that already started up in 2016 and 2017 and targeted mostly Asia and Europe. Apparently, the competition will be fierce across the global PE markets and players will need to watch the changing market dynamics more closely and carefully.
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