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What lies ahead for global polymer markets in 2019? More clouds?

  • 02/01/2019 (09:26)
Petrochemical players have left a stormy 2018 behind amid the impact of the US-China war on the flow of trade, fears of a slowdown in global economies and volatile oil markets.

Participants already shifted their attention to 2019 with eyes on a bunch of crucial factors that will influence the first quarter and afterwards. There appears more clouds on the horizon than there were in 2018.

Oil prices may stagnate further until February

The steep fluctuation in crude oil markets left its mark on the last days of 2018. Lower energy prices cast a shadow on earlier projections that PP and PE prices might firm up by the new-year.

WTI crude oil futures ended the last session of 2018 at slightly above $45/bbl. They indicated a 25% ($15) loss from where they began 2018 and this was their first annual drop in 3 years. Similarly, ICE Brent futures plunged by around 20% for the whole 2018 as they settled at almost $54/bbl on December 31. According to analysts, fears of a slowing global economy and emerging supply glut outweighed impending output cuts from OPEC members.

The concerns of a persistent supply glut lingered moving into 2019. Some analysts think that oil prices may continue to stagnate until February, when OPEC’s planned cuts of 1.2 million barrels/day in January start to impact global supplies.

Change in trade flows will continue

The US-China dispute had a large impact on downstream PE markets in the wake of bilateral tariffs. This was because the new US PE capacities had to change their way to destinations other than China, which led to ample supplies in Southeast Asia, Turkey and Europe during the second half of 2018.

The two major economies suspended new tariffs for 90 days in a meeting convened after the G20 summit in Argentina in December. Yet, the downturn in relations is likely to continue to affect trade flow in 2019 as the deal did not remove the existing tariffs that both sides have applied on one another. This is likely to keep pressure on the alternative export destinations for new US petchem capacities.

Concerns over local currencies against the USD and global economy persist

As an another outcome of trade war, the depreciation of local currencies in major markets of Turkey, China and Southeast Asia against the USD kept appetite for imports of polymers moderate in those regions during the most of the past year.

The volatility in the USD parity against many local currencies will be an important factor to watch throughout 2019 in the wake of the upcoming hikes in interest rates by Fed on one hand and the impact of US-China trade war on the US economy and the political consequences of multiple issues of the Trump administration on the other hand.

Not only the US, but also the world’s second largest economy, China, is also feeling the impacts of the trade war with first signals on the devaluation of the yuan, scrutinized bank credits associated with higher lending costs and financial defaults caused by real-estate over-building.

New US capacities are on the corner disregarding a few delays

The US is set for a new wave of capacities in 2019, particularly for PE, despite some recent delays. Companies will remain in search of export outlets into 2019 considering the fact that US HDPE and LLDPE are subjected to additional tariffs of 25% in China.

Formosa Plastics USA postponed the startups of its new 800,000 tons/year PE plant in Texas to H2 2019 from H1. The company plans to bring its new 250,000 tons/year PP plant online in H2 2021 and a 136,000 tons/year PVC capacity in Q4 2021 instead of 2020.

Exxonmobil and LyondellBasell are reportedly readying to start up their new HDPE (500,000 tons/year) and PE (650,000 tons/year) plants, respectively, starting from mid-2019. Sasol also plans to start up its 420,000 tons/year LDPE plant later this year.

According to the US International Trade Commission (USITC), US PE exports rose by 13.2% on the month and 70.9% on the year in October 2018, in tandem with the increased capacities. Some industry sources expect the additional capacities to result in long supplies particularly for LLDPE, due to the start up of more LLDPE plants across the world.

Asia and Russia are also set for new PE, PP facilities

Not only the US but also Asia is readying for a new round of capacities this year as around 1 million tons of PE and 3 million tons of PP are estimated to be added, mainly in China based on coal-to-olefin (CTO) technologies. New capacities will probably weigh on the markets over the short term although the impact could be deterred by start-up delays that will help spread excess capacities over the few years.

There are also other PP and PE capacities that are due for start-up in Vietnam, Indonesia, Malaysia and the Philippines within this year. Sibur’s ZapSibNeftekhim complex in Russia is slated to come on-stream in late 2019 including downstream PE (1.5 million tons/year) and PP (500,000 tons/year) plants.

Uncertainties for post-Brexit remain as a source of concern

The UK is readying to depart the European Union (EU) as of March 2019. According to forecasts, chemicals and transport equipments would be affected the most as potential hikes in trade barriers could disrupt the integration in the production supply chain in the post-Brexit period. According to a statement from EEF (The Manufacturers’ Organisation) made in December, manufacturers in the UK may see their slowest year of growth since 2015 as Brexit uncertainty hampers foreign demand and businesses may face shortages of raw materials.

Plastics recycling will stay as a rising trend

It is important to note that concerns of an economic slowdown in Europe and a rising trend for using recycled material are seen as drivers that could reduce the consumption of virgin plastics in 2019. More companies are expected to rearrange their investment plans towards waste management.

Several leading companies already put their commitments to eliminate plastic pollution and became involved in recycling investments over the last year. This followed China’s decision to ban imports of plastic scraps in January 2018, which threw recycling businesses into a turmoil.

Where do polymer prices head for in early 2019

PP, PE markets closed 2018 on a steady to softer note in China, SEA and Turkey as the year-end festivities halted activities.

After PE prices saw almost a decade low for some grades in these regions, the short term outlook will highly depend on crude movements as lower energy prices already weighed on the sentiment heading to January. Futures markets remain as another factor to track in China. Global PP markets may display a firmer trend over the short-term compared to PE, according to some players.

China, SEA

Demand may pick up in China for PE in March since both supply and demand are likely to be moderate during the New Year holidays in February, on another note. Nonetheless, American cargos will continue to show presence in major Asian PE markets during 2019 thanks to their cost advantage stemming from cheap shale-gas.

Turkey

Turkish players expect the first quarter of 2019 to face the ongoing economic challenges. They will also gauge the possible impact of the attempts to reduce the use of plastic bags and the elections in March on the markets in the coming months.

Europe

In Europe, January ethylene and propylene contracts settled down €40/ton and €35/ton, respectively, which will play a key role in the setting of January trend. Limited PP supplies may probably offset the falling monomer prices to some extent, while PE prices may face a downward pressure. Ethylene, meanwhile, is expected to be firm in the early months ahead of cracker turnarounds while it may weaken in the second half due to oversupply.
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