Global polyethylene: 6 key things for 2018 (Part 1)
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1. North American investments and polyethylene type optimisation
The pace of North American investments in ethylene and polyethylene will be critical. Of the 8 million tons of expected polyethylene projects, approximately 4 million tons capacity began the production in 2017. From the monomer feedstock side, only 2 million tons of new ethylene capacity started the production, but several new ethylene plants are scheduled to start-up in Q1/Q2 of 2018. Some of the ethylene-polyethylene complexes were severely impacted due to the Hurricane Harvey, which led to delays in 2017.
New polyethylene facilities are running at lower operating rates, due to the typical ramp-up cycle before reaching the on-spec resin and due to the delays in the on-site monomer from the steam crackers. Starting up of the steam cracker will be essential in ramping up the polyethylene operating rates. We expect that the market will start seeing the effect of large stockpiles of polyethylene soon, which will be exported in large volumes after the Chinese New Year. Due to large inventories, we expect HDPE spot-export FOB Houston price to drop from $1,100/ton in Dec 2017 to $910/ton by the end of 2018. The expectation for higher crude oil prices in the future will result in better US-based polyethylene margins.
Many global polyethylene producers will optimise their production assets to effectively respond to the changing market dynamics. For example, many companies are evaluating the switch of mLLDPE from the older assets into the newer assets. However, significant optimisation will occur after 2018. Many producers will use the majority of 2018 to improve the market share in the Asian markets for differentiated products such as mLLDPE and higher-alpha-olefins LLDPE.
2. China’s scrap plastic import ban
The regulation change in China will accelerate the demand for the virgin polyethylene in 2018. Last year, China domestic demand grew at 11% year-on-year, thanks to organic plastic demand growth and virgin plastic demand growth related to the “National Sword” campaign (an initiative to reduce imports of foreign waste products and smuggled goods). We forecast 10% additional year-on-year growth for the China domestic polyethylene market in 2018. The majority of this increase is attributed to increasing virgin plastics consumption post the ban on the scrap plastics imports.
More recycle facilities are investing in the United States and Europe, and it will lead to greater recycled polyethylene volume in the region during the second half of 2018.
China is looking to recycle its accumulated plastics waste efficiently. Reduced plastic waste imports will lead to higher levels of domestic recycling for Chinese recyclers. Net-net it will reduce the overall availability of domestically sourced recycled polyethylene volume in China in 2018.
3. Changes in tax structures in the United States and India
The lowered corporate tax in the United States starting in 2018, when aligned with low polyethylene resin prices, will be supportive of the further justification of plastics manufacturing facilities. Overall, the new tax structure is poised to positively impact the long-term domestic demand growth prospects for polyethylene resin.
The impact of India’s Goods & Service Tax (GST) will be more visible in 2018 as the initial “teething problems” are in the rearview mirror. Inland logistics is likely to be more efficient with the implementation of the GST, which will lead to more expansions and new investments in the plastics manufacturing facilities.
Read part two of the Global Polyethylene Series here.