It's likely that plastics prices in US will fall from their post-pandemic highs amid rising production and slowing demand, which is good news for consumers, such as auto manufacturers who have been struggling with surging raw material inflation since the height of the Covid 19 epidemic.
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The contract price for high density polyethylene or HDPE, a closely watched benchmark in the plastics industry, is expected to decline this year, according to industry analysts. Since the beginning of January, spot prices for US HDPE have fallen by 12.5 cents per pound, or 21%, according to ICIS.
The downturn came after a dramatic rally in 2021 when government stimulus helped the global economy rebound from the worst effects of the virus. A snapback in demand for cars, electronics and other consumer goods resulted in unprecedented supply-chain snarl-ups, which inflamed price inflation. The US Gulf Coast, a major production center for petrochemicals, saw capacity curtailed due to the impact of hurricanes and a severe winter storm.
The world economy is cooling, with worldwide growth expected to drop to 2.9 percent in 2022, from 5.7 percent in 2021, according to the World Bank.
There is a slowdown in play out across the major markets, according to the chemicals industry. One of the world's largest US plastics companies and major Gulf Coast operations, LyondellBasell Industries NV said last month that moderated demand in China and Europe is likely to compress margins across most of the company's businesses in the third quarter. See also: Oil demand in petrochemicals will double by 2050, BNEF says.
The deceleration in consumption is particularly inconvenient for the US plastics industry as it continues to ramp up capacity. The US has a major cost advantage over Asia and Europe due to the abundant cheap natural gas unlocked country shale revolution.
For example, gas is used as a feedstock for polyethylene. The US companies that produce plastic in North America are expected to increase by 13% by the year 2023, with Exxon Mobil Corp. and Shell Plc adding new plants in Texas and Pennsylvania, according to NexantECA, an industry adviser.
The supply-chain woes in the U.S. are a concern for US producers. According to ICIS, the industry would export about 40% of its production every month. In the last few months it has dropped to 30% - 35% due to logistical bottlenecks, according to Jeremy Pafford, head of North America for market development at the firm.
There is a concern that petrochemical giants will have to reduce their production rates due to the downward pressure on prices, said Jeremy Pafford, head of North America for market development at ICIS. Supply is more than ample with US-origin PE polyethylene export trips still being quantified in months instead of weeks and domestic warehouses filled to the brim, which is weighing on PE pricing. Facebook is still making Billions as Zuckerberg hits the Panic Button.