U.S. polyethylene producers' desire to export to China may fail

ICIS, a market information service provider for the global energy and chemical industry, said that by analyzing the remarks of Dow Chemical and LyondellBasell, the world's major polyethylene producers, on their fourth-quarter earnings conference calls last year, it can be seen that they are preparing to export more polyethylene.
Ethylene, and hopes for a surge in market demand after the Chinese New Year
.

China's demand is crucial for new global polyethylene production capacity, and it is expected that global polyethylene production capacity will increase by 8 million tons in 2022
.
Influenced by China's policies to curb greenhouse gas emissions, the overall demand for chemicals in China will be curbed in the second half of 2021
.

Ken Lane, LyondellBasell's interim CEO, said, "The market recovery will absorb a lot of new polyethylene production capacity.
The global polyethylene production capacity utilization rate will reach more than 90% in 2022, but there is still a large amount of demand that has not recovered
.
"

Dow Chemical Chief Executive Jim Fitling is also keeping a close eye on the Asian market, where the company hopes to increase polyethylene exports in 2022
.
"We've seen some higher-cost Asian producers reduce operating rate levels, and we'll be keeping a close eye on the Asian polyethylene and ethylene glycol market as the Chinese Lunar New Year ends," he said
.

North America has greatly expanded its capacity and urgently needs exports

According to ICIS data, in 2022, polyethylene production capacity in the United States and Canada will increase by 3 million tons per year compared with 2021, an increase of more than 10%
.
If the expansion of polyethylene in the fourth quarter of 2021 is included, this wave of new North American polyethylene capacity will be 4 million tons per year
.

China is the world's largest polyethylene export destination, accounting for about 60% of global net imports of polyethylene in 2021
.
"North American polyethylene producers need to increase exports as a percentage of total sales to nearly 45 percent, rather than last year's industry average of 34 percent," said Brian Pruitt, senior vice president of polyethylene and polypropylene at ICIS's chemical data company.

If they don’t do this, the operating rate of the polyethylene unit will drop to 80% and they will sell more polyethylene to the domestic market .

”

John Richardson, senior consultant for Asia at ICIS, pointed out that if exports account for 43% of production capacity, U.
S.
HDPE exports in 2022 will surge more than 50% from 2021 to 4.
5 million tons
.
Affected by the hurricane in 2021, the export volume of high-density polyethylene in the United States will fall sharply
.

In 2022, two large greenfield polyethylene projects will come online in the U.
S.
, the Shell project in Monaca, Pennsylvania, and the Bayport Polymers project in Bayport, Texas
.
In addition, Gulf Coast Growth Ventures, a joint venture between ExxonMobil and SABIC, has started production at the end of 2021 and is expected to fully expand polyethylene production capacity in 2022
.
In Canada, Nova Chemicals' LLDPE plant in St.
Clair, Ontario is expected to start production in the fourth quarter of 2022
.

There are variables in the Chinese market

According to ICIS data, global polyethylene production capacity in 2022 will increase by 8 million tons per year compared with 2021, an increase of about 7%, most of which will come from China
.
Pruitt said, "China will still need to import polyethylene, but with the construction of large-scale local capacity, the dependence on imported polyethylene will gradually decline
.
Therefore, North American producers will have to focus on other export destinations, such as Europe, South America, Mexico, Vietnam and Malaysia”
.

Richardson said Chinese polyethylene demand grew by 9% in 2020, driven by economic stimulus plans and a surge in exports, but demand actually fell in 2021, with HDPE demand down 5% and low-density polyethylene demand lower 6%
.

Richardson said, "China's polyethylene market may recover as usual after the Spring Festival, and in October or November, we may see additional easing measures and stimulus measures in China
.
However, due to the impact of epidemic policies, demand may be suppressed
.
"

Taking China's LLDPE imports as an example, there are various outcomes depending on demand growth and domestic operating rate levels
.
For example, under the basic situation that China's demand increases by 5% and the domestic operating rate is 83%, the net import volume of China's linear low-density polyethylene in 2022 is expected to be 7 million tons
.
But Richardson said that if demand is flat and domestic operating rates are at 92%, China's net imports of LLDPE could be as low as 4.
7 million tonnes in 2022
.

Oil prices are also expected to affect the operating rate of polyethylene units, as most of China's production capacity is based on naphtha feedstock, high oil prices will limit the operating rate of polyethylene units, and falling oil prices may stimulate production increases
.
Meanwhile, Chinese manufacturing activity remains underwhelming, with the Manufacturing Purchasing Managers' Index (PMI) falling to 49.
1 in January from 50.
9 in December, indicating a contraction in manufacturing (below 50)
.