US sees PE exports reach record levels in 2018

Petrotahlil:The US exported a combined 4,316,232 mt of all grades of polyethylene (PE) in 2018, up 24.2% on the year and 11.4% over 2016, the data this week showed.

Some of the gains can be attributed to PE capacity expansions in the last two years. Since the beginning of 2017, the US has added nearly 6.4 million mt/yr (35.9%) of annual PE nameplate capacity.

Exports to regions that typically serve as the primary destinations for US-origin resins rose across the board, although there were some shifts in shares as a result of geopolitical influences, sources have said.

The first wave of PE capacity additions in the US came with export markets in mind, and sources have routinely said that Asia -- China in particular -- is a key target. The vast majority of capacity additions are focused on high-density polyethylene (HDPE) and linear-low-density polyethylene (LLDPE).

With trade tension between the US and China emerging in 2018 and eventually leading to a protracted and ongoing trade war, pressure points developed in the export market. China implemented a 25% tariff on US-origin LLDPE and HDPE -- effective August 23, 2018 -- in essence making both grades uncompetitive in the import market.

US exports of PE to China peaked at 74,295.1 mt in June 2018 for a 18.7% share. That came around two months before the Chinese tariffs on LLDPE and HDPE were to take effect, leaving just enough time for US export volumes shipped out during June to reach China without being subjected to 25% in additional costs.

PE exports to China fell steadily from that point en route to declining five straight months between July and November, a period during which US exports were rising to record levels.

Still, US exports of PE to China ended the year at a record 526,092.8 mt in 2018, up 12.7% for the year. China's share, however, dipped to 12.2% of all US PE exports, down from 13.4% a year ago.

A change to China's consumption of recycled plastics was a mitigating factor, with the country's "National Sword" policy taking effect in January 2018 and banning imports of mixed plastics waste, which include a high percentage of PE wastes.

That, in turn, drove up Chinese demand for virgin pipe-grade HDPE resins and provided support for global HDPE pipe prices. As Chinese import pricing rose for HDPE pipe of non-US origin, resins from the US regained competitiveness, even while being subject to the 25% tariff.

Other regions filled in the gap in 2018, the data shows, in line with market talk of "musical chairs" that dominated the second half of the year. As trade tensions grew throughout the year, other regions started feeding China's PE appetite while trade with the US hung in the balance.

Europe, in particular, saw volumes of US-origin PE bound for its markets more than double, while Vietnam also saw a considerable gain. As a whole, the US sent 310,696.6 mt of PE to the 28-member European Union last year, up 136.4% from 2017. The US sent Vietnam 125,579.9 mt of PE in 2018, up 714.2% from the year prior.

To that end, Dow DuPont CFO Howard Ungerleider in late November 2018 said the company was able to utilize PE production assets in Europe, among other regions, as part of a strategic plan to supply China while minimizing the impacts of tariff on resins produced by its US arm.

"Our footprint gives us the ability to move the product wheel around the world to make sure that we minimize any impact," Ungerleider said. "We're going to have to be agile."

A byproduct of the shifting trade flows was pressure on global PE prices. US export prices fell sharply over the second half of last year, resulting in year-on-year declines of double digits.

That, in turn, applied pressure in the domestic market, as US producers scrambled to place all the excess volumes coming off the new production capacities, sources said.

LDPE export pricing entered January down 21.5% compared with the first assessment of 2018, while butene-grade linear low density polyethylene (LLDPE butene) was down 22.8% over the same period. 

High density polyethylene (HDPE) grades also opened the year at record lows, skidding between 14.3%-19.8% compared with the first assessments of 2018, according to Platts data.

The dips in export prices over the last year have been more pronounced than those experienced in the domestic US market, which saw declines of 11.2%-15.9% in 2018.