The fall in Chinese imports is not a surprise given the significant capacity additions over the last 6 months. There is an additional wave of investments planned for the next 6 months and we could see imports fall further as the year progresses. Even with strong demand growth in Asia and other parts of the world, this could leave the major exporters – the Middle East and North America with surpluses, although that is not evident today. Prices continue to rise for polyethylene in the US (see chart below) and Europe, partly because of the lingering impacts of the freeze, but also because apparent demand is high. This is going to be a tough year to call as we expect to see the supply chains over-compensate for the problems that have existed since the last quarter of 2020 and chain inventories to build. This could add several hundred basis points of demand in 2021, masking the new capacity in China and the theoretical oversupply that would exist if all global facilities were operating. This could set up 2022 for disappointment, and impact the longer-term supply/demand balance negatively, as the high profits of 2H 2020 and 2021 could encourage more investment such as the ones highlighted by SABIC, and India.
As noted in the rail car data this week, we are not yet back to normal in the US, with shipments still below the early 2021 levels, despite very strong apparent demand domestically and for export. Given the chemical and polymer capacity that has been added in the US over the last 5 years and with rial being a major mode of transport, we would expect the rail car data to keep moving up, back to the early 2021 levels and maintain rates well above 2019 and five-year average ranges – consistent with the demand growth that we have discussed above.