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YEAR IN REVIEW: Prices firm as expected PE expansion a no-show
HOUSTON, December 29, 2017 (PCW) -- The overwhelming abundance of PE resin that was expected in 2017 never came, and prices ended the year higher than they began it, largely because of the supply disruptions created by Hurricane Harvey. The benchmark HDPE blow mold grade is averaging 50 cpp FOB Houston this December, compared with 42.4 cpp a year ago.
Four months after Harvey, some petrochemical plants have not yet fully restarted, but new units have come online and will continue ramping up during the early part of 2018.
ExxonMobil, Dow Chemical, Chevron Phillips and a joint venture of Ineos and Sasol all commissioned PE units during 2H 2017, although Hurricane Harvey caused delays of a few weeks. Those new units can produce 3.17 million mt/yr (6.99 billion lbs/yr). Notably, much of the new capacity is targeted at higher-value products such as metallocene-based LLDPE (mLLDPE) and bimodal HDPE, which can be used in pressure pipe and film applications. However, initial production runs targeted commodity grades like HDPE crate/pail and LLDPE butene film, and those market segments began to look oversupplied in late 2017.
NOVA Chemical commissioned a new LLDPE reactor (431,000 mt/yr or 950 million lbs/yr) early in the year, but spent much of the year building resin inventories ahead of major maintenance operations at both its sites in Canada. Those turnarounds began in August and ran well into 4Q.
Braskem-Idesa raised the operating rates of its Mexican PE complex during 2017 and it began to have a discernible impact on PE trade flows. January-October 2017 US LDPE exports to Mexico were down 14,402 mt from a year earlier, and HDPE exports were down 197,615 mt.
An important question for 2018 is what operating rates the new US PE capacity will achieve. Ethylene could prove to be a limiting factor in the early going—Chevron Phillips only recently began startup activities at its 1.5 million mt/yr ethane cracker in Cedar Bayou, and ExxonMobil may not have commercial output from its 1.5 million mt/yr Baytown expansion cracker until mid-2018.
The course of PE markets in 2018 will also depend on how well the international market can absorb higher production volumes. PE demand in the fast-growing Asian markets has been strong in 4Q 2017, especially for HDPE. As a result, US suppliers have been able to channel much of their startup resin, including wide spec material, away from the domestic market.
Chinese demand is likely to soften around the Lunar New Year holidays, but region-wide ethylene tightness could keep Asian PE prices well-supported early in 2018. In a scenario of robust Asian demand and tight US Gulf ethylene, US PE supply could prove to be more balanced than expected, at least through the first few months of 2018. Eventually the new North American output will hit the domestic market in fuller force, providing downstream processors the pricing leverage that they were craving for much of 2017. -- David Barry