How will the global HDPE demand change in the next 5 years?

Taking the United States as an example, ICIS expects that most PE and polypropylene (PP) facilities in the United States will restart in mid-March after a 3-4 week production interruption
.
We believe the U.
S.
market will remain tight throughout April-May
.

As you know, the US is just one factor in the extraordinary tightening today
.
Recent reports of power outages in the Middle East have also reduced supplies
.

Dating back to the beginning of the global pandemic, supplies of propylene, naphtha, butane and propane feedstocks from refineries have been reduced
.
That's the result of refinery cuts due to plummeting demand for gasoline, diesel and jet fuel
.

So perhaps the global supply crunch will continue even beyond May, when we expect some extreme supply crunch in the US to ease
.

Perhaps, the crude oil market will also continue to provide fuel for higher petrochemical prices
.

Confidence that the world was past the worst of the pandemic was boosted by OPEC+'s March 4 decision not to increase production by 500,000 barrels per day
(bpd) .
Saudi Arabia announced at the same meeting that it would continue to voluntarily reduce production by 1 million barrels per month
.

But, as I said, the tide of tight supply will have to turn around at some point
.
So every petrochemical producer, every planner in the trading house and every buyer must spend time identifying the signals that point to when the market will turn
.

Adding up the plants and tons that are offline but back online will only get you so far
.
The big unanswered question at $64,000 remains the strength of actual demand rather than buyers hoarding apparent demand ahead of further price gains
.

Estimating actual demand is as much as qualitative because we lack many of the data points necessary to draw firm conclusions
.

There are two important reasons for the lack of sufficient data points
.
First, the complex interplay between four major global trends today (pandemic, sustainability, geopolitics, and demographics) completely upends the notion that you can link petrochemical demand growth to GDP
.

Therefore, it is crucial to construct scenarios about what happens after a supply squeeze
.

Once the extreme supply crunch is over, you need to have upper, middle, and lower scenarios to see what might happen with prices and profits
.

To help kickstart the process, here are three scenarios I took from last week for actual global petrochemical demand in 2021-2025:

Scenario 1: Demand for petrochemicals could surge as Western countries unleash massive personal savings and unprecedented levels of fiscal and monetary stimulus further boost consumption
.
Australia's retail sales have soared and the housing market has rebounded as Australia emerged from the pandemic a few months ago
.
The rest of the West is likely to follow, with the boom also boosting China's important export sales
.
It has been suggested that the next few years could be like the "roaring 2020s"
.
In the 1920s, following the Spanish flu pandemic, the global economy boomed
.

Scenario 2: Alternatively, the outcome may be neutral, as consumption in 2020 is already very good
.
As we emerge from the pandemic, our demand for some goods may decrease during the lockdown, but the demand for "old world" services will increase as travel
.
Additional demand for travel can be offset by reduced demand for goods we no longer need
.

Scenario 3: What about the risk of inflation? Conversely, as the economy overheats and interest rates return to 1970s levels, demand may collapse (I think that's very unlikely)
.
Otherwise demand could drop because all the job losses from the pandemic won't be fully covered by stimulus (again I don't think that's likely, but customers still need to plan for this adverse scenario)
.

Note that these three cases represent only one level of complexity
.
These three results only take into account the impact of recovery from the pandemic on demand
.
We also need to incorporate the impact of three other megatrends into the impact of sustainable development, geopolitics and demographics
.
But it's at least a starting point for your scenario planning
.

Now, following my work on global PP demand last week, let's consider what the following three scenarios might mean for global high-density PE (HDPE)
.
In future articles, I will cover low density PE and linear low density PE
.

Three scenarios of global HDPE demand

Under Scenario 1, global HDPE demand will grow 8% this year, 7% in 2022 and 2023, and slow to 5% in 2024-2025
.
In 2021-2025, the global cumulative demand will reach 308 million tons, and the global average operation rate will reach an exciting 93%
.
So many long-term forecast HDPE down cycle too much supply!

Scenario 2 remains flat, but not dramatic, and is projected to grow 5% this year, 4% in 2022, 3% in 2023-2024, and 2% in 2025
.
The cumulative global demand is 280 million tons, which is 28 million tons lower than Scenario 1
.
The average operating rate for 2021-2025 is 85%
.

I don't see global interest rates going above 3% for the next few years, and certainly not anywhere near the levels of the 1970s
.
Over the past decade, interest rates in the United States have been as high as 20%
.
Such rates are almost unthinkable for a generation that grew up with historically very low borrowing costs
.

But let's assume I'm wrong
.
In Scenario 3, inflation is out of control, requiring interest rates well above 3%
.
Or the deep economic scars left by the pandemic will not be fully compensated by fiscal and monetary stimulus
.

Scenario 3 forecasts that global HDPE demand growth will contract by 2% this year and by 5% in 2021
.
Positive growth of 4% in 2023-2024 and 5% in 2025
.
The cumulative global demand from 2021 to 2025 will reach 248 million tons, a full 60 million tons, which is lower than the tonnage of scenario 1
.
The global average operating rate for 2021-2025 is 76%
.

Incremental improvement is better than nothing

Modeling the impact of government policies on petrochemical demand is difficult
.

You must first look up all the police details by country
.
Then you need to assess how effective you think the policy is in solving economic problems and persuading people to open their wallets
.
As noted above, savings rates are rising in the West despite massive stimulus packages.
Another key requirement is trying to better assess demand downstream of supermarket shelves and car showrooms
.

Many retailers have potentially very valuable data on the petrochemical industry
.
But will they share? And how do we deal with this massive amount of data without making a major leap in digitization?

But if we can incrementally push for better measurement of demand, then that will be progress
.
Actual may always be smaller than ideal
.

When assessing the growth of petrochemicals, it is not only the sum of the number of plants closed or restarted that has to be relied on as an almost straight-line pattern related to GDP
.

If only relying on the old methods, petrochemical producers, traders and buyers will continue to be blinded by events
.
They will continue to react to market movements, leaving hundreds of millions of dollars in gains on the table
.