It is important to note from the chart below that the US plastic resin price index is out of phase with the overall industrial products markets as we saw a shortage driven peak in 2021 – largely weather and supply chain-related. The US on average continues to command resin price premiums relative to Asia. The China polymer surpluses are largely land-locked for now because of very high shipping costs and very high oil-based production costs, and the US surplus is also challenged because of logistic issues with exports. In the US, exporters are building inventory in anticipation of better logistics and on the basis that the surpluses for the most part have customers. If we do see a global slowdown in demand, triggered by inflation – see our most recent Sunday Recap – the inventories in the US and China could become a problem.
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.