Polyethylene Exports: Race to the Bottom

On Monday, April 12, the United States International Trade Commission posted February 2020’s trade data. The numbers clearly show that, on the heels of Texas “Snowmaggedon,” U.S. exports of polyethylene went down as fast as a skier in a super giant slalom. We need to go back to February of 2019 to find polyethylene exports as low as they were in February of this year. The decrease in exports was remarkably similar across the different polyethylene types. HDPE exports decreased by 20%, LLDPE by 21%, LDPE by 19% and EVA by 18%. Elastomer exports decreased by 14%.

U.S. Polyethylene Exports by Region, KT

U.S. Polyethylene Exports decreased in February

Source: https://dataweb.usitc.gov/

As you may well know, the last twelve months have not been without hiccups for polyethylene trade. In 2020, hurricanes Laura and Delta put a dent on polyethylene exports out of the U.S. By early 2021, as exports were finally recovering, the cold snap that blanketed with snow the southern states of the U.S. caused massive power failures in the state of Texas. As a result, most of the petrochemical plants in the U.S. Gulf Coast were shut down.

Besides the immediate impact in polyethylene prices, which have reached levels not seen before, trade was severely curtailed. Producers, which had to contend with low operating rates and increasingly thin inventories, redirected material originally intended for the export market to domestic users. Asia, which had become an important destination for U.S. exports, was severely impacted. Exports to the region decreased by 45% versus their level in January and were at their lowest level in 48 months.

U.S. Polyethylene Exports to Asia, KT

U.S. Exports to Asia decreased by 45% in February

Source: https://dataweb.usitc.gov/

Asia has been a key destination for U.S. exports. The United States had embarked on a large wave of investments in polyethylene capacity, to take advantage of cheap and abundant ethane. Most of those projects were geared towards the exports market, and Asia was the main intended destination. The recent trade disputes between the U.S. and China resulted in a higher focus on exports to South East Asia. Nevertheless, in 2020, despite the trade tensions between both countries, China was key in helping U.S. producers continue to grow exports, with the total volume sent to Asia reaching almost 400 thousand tons at its June 2020 peak. In February, as availability of polyethylene got reduced and export prices out of the U.S. went through the roof, exports to South East Asia decreased by 48% and exports to North East Asia dropped by 43% versus its level the prior month.

U.S. Polyethylene Exports to China, KT

Both North East and South East Asia saw rapid decline in exports from the U.S.

Source: https://dataweb.usitc.gov/

On the other hand, exports to Latin American (excluding Mexico) remained in line with their level 12 months ago and increased 2% versus their level in January. This apparently puzzling situation is likely related to other issues affecting not just polyethylene but trade in general. The U.S. is Latin American’s main external polyethylene supplier. That said, the region also imports from Asia, Middle East and Europe. However, global trade is being snarled by a container shortage that started last year and it is yet to show signs of abating. This is probably preventing Latin American converters from getting relief by purchasing and importing polyethylene from other regions with much lower prices than the U.S. As a result, they are forced to buy most of their needs from their traditional (and currently extremely expensive) supplier.

U.S. Polyethylene Exports to Latin America (KT)

U.S. exports to Latin America remained elevated

Source: https://dataweb.usitc.gov/

It is likely that the reduction in polyethylene exports out of the U.S. will have continued in March and will probably continue through April. During the most recent JP Morgan Industrials Conference, Bob Patel, LyondellBasell CEO, estimated that 10 to 14% of the U.S. polyethylene capacity was taken offline as a result of the freeze, and that it won’t be until the 4th quarter of this year that conditions will be back to normal, meaning industry meeting underlying demand and healthy inventories throughout the value chain.

As economies around the world recover from the Coronavirus economic downturn and demand for polyethylene continues to expand, a reduced presence of U.S. producers in international markets for an extended period of time may pressure polyethylene prices to move higher. We will keep a eye on the evolution of trade out of the U.S.; on the meantime, let us know if we can assist you in navigating and understanding these challenging market conditions.

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