The focus today should be on the data suggesting that the US is importing both polyethylene and polypropylene, something which the nominal US supply/demand balance for both products should not support. The US has a material surplus of polyethylene capacity (almost 30% of US polyethylene capacity is surplus to US needs – on paper) and the start-up in the Fall of last year of Braskem’s new polypropylene units in Texas should have pushed polypropylene into surplus and the message from Braskem before start-up was that the company expected to export as significant volume. So, what has changed? Anyone reading our daily reports will have seen us highlight the development of a reverse arbitrage for both polymers’ pricing versus “normal” for many months, this is not news. What is news is that there is not enough flexibility in the system to meet US demand at attractive enough prices to avoid opportunistic imports. However, some of the imports likely are from companies with capacity in the US and other countries trying to balance their global portfolios. It is also possible that polymer consumers who are less concerned about specific grade quality – i.e. those that are already bidding up recycled polymer prices are importing opportunistic volume to lower their average purchase prices.
Imports of polymers into the US will, in our view hasten the correction in the market, especially when we add the restart of capacity in the US Gulf after the freeze and the start-up of both the Braskem Idesa unit in Mexico and the Shell units in Pennsylvania (all polyethylene).
The wild cards remain the very strong 1Q US economy – with estimates of growth rising every day, and, as shown in the chart below, some lingering production limitations in the US, which may be very product specific and driven by continued COVID restrictions.
