The ACC May production data shows the very strong year on year production growth globally, with the US gains more muted than the rest of the world as the COVID production impact in May of 2020 was less severe in the US than in many other parts of the world, and the China growth has been further assisted by significant capacity additions since this time last year. It is interesting to note that on a year to date basis the US is still down year-on-year, which is the lingering impact of the winter storm on production and it reflects that there is not much space capacity in the US, given both the strong demand and the export economic advantage of lower feedstock costs. Despite the collapse in prices in Asia – very well reflected in Exhibit 1 in today's daily report – the US has enough margin to continue its derivative and ethylene exports.
Source: American Chemistry Council, July 2021
The year-to-date plastic resin growth (Exhibit 3 in today's daily report) is indicative of the swing in chain inventory in our view, as plastic resin demand, especially for packaging was not hurt by the Pandemic, and we would have seen an inventory draw in the first half of 2020 globally as producers adjusted production down too far, followed by the mad scramble (continuing is select products and regions) to keep up with higher demand, correct for lost inventories and then add more to counter supply chain concerns. The surge in production is well above the trend underlying demand growth and the risk is that some of what we are seeing will result in a negative correction eventually.
