Polyethylene Production Expands, but Trade Fears Loom

Polyethylene Production Expands, but Trade Fears Loom

Between 2014 and 2017, polyethylene production expanded as chemical companies opened new facilities. Production is further expected to expand through 2022 as companies such as LyondellBasell and Shell bring even more capacity online. However, the US market for polyethylene is mature and saturated. So why are these companies still ramping up production?

New Polyethylene Plants

Polyethylene is a type of plastic resin commonly used in widespread applications such as packaging, plastic bags, and plastic pipe. The feedstock for polyethylene is derived from natural gas. Because of the ongoing US shale oil and gas boom, major plastics companies are building new plants to take advantage of cheap and abundant natural gas. Companies that have built or plan to build plants between 2016 and 2021 include ExxonMobil, DowDuPont, Formosa Plastics, Shell, LyondellBasell, Chevron Phillips Chemical, and SASOL.

Domestic Market Impacts

The US polyethylene market (which is already mature) can’t soak up all of the expected new polyethylene production. Instead, the new capacity coming on line amid a relatively slow-growing market will moderate price increases. Furthermore, recent efforts to limit use of polyethylene products, such as the city of Boston’s plastic bag ban, will also reduce demand.

Foreign Market Impacts & Tariffs

However, these new production facilities aren’t being constructed to supply the mature US market. Polyethylene companies are expecting strong growth from China, India, and other developing markets, and they intend to export inexpensive US polyethylene to satisfy demand in these countries. Increasing exports will likely counter the price moderating effects of the new polyethylene demand on the domestic market.

Whether plastic tariffs will have an impact, however, is not entirely clear. In August, China imposed tariffs against the two most popular polyethylene resins (HDPE and LLDPE). Tariffs on US exports to China could potentially hurt US producers. In 2017, China represented the third largest destination for US exports after Mexico and Canada, accounting for 13% of exports. Instead of increased revenues and healthy return on investment from new polyethylene plants, US producers may be forced to maintain polyethylene sales to a saturated US market despite excess production, resulting in lower profit margins– a boon for end users of the resin, but a certain loss for the producers. Producers may still find alternate markets for export, but the loss of China as a market might significantly hamper export sales.

Ultimately, companies began planning their expansion to capitalize on cheap feedstocks and strong export growth. With the advent of the Chinese tariffs, what seemed like a surefire plan has turned into a gamble on whether strong export demand will be stifled by tariffs.

Want to Learn More?

Don’t worry, we have you covered! For additional information and analysis of industry trends, see Polyethylene: United States, a report published by the Freedonia Focus Reports division of the Freedonia Group. This report forecasts to 2022 US polyethylene demand and shipments in pounds, demand in nominal US dollars at the producer level, and prices. Total demand in volume and value terms is segmented by resin type in terms of:

  • high-density polyethylene (HDPE)
  • linear low-density polyethylene (LLDPE)
  • low-density polyethylene (LDPE)

Total demand in volume terms is also segmented by market as follows:

  • packaging
  • consumer and institutional products
  • building products
  • other markets, such as electrical and electronic products, industrial goods, and transportation equipment

To illustrate historical trends, total demand, total shipments, the various segments, prices, and trade are provided in annual series from 2007 to 2017.

Ultra-high-molecular-weight polyethylene is excluded from the scope of this report, as are other polyethylene copolymers such as ethylene vinyl acetate (EVA) and polyolefin elastomers/plastomers. Recycled polyethylene is also excluded. Re-exports of polyethylene are excluded from demand and trade figures.

You can also check out our related reports, which include:

About the Author

Owen Stuart is a Market Research Analyst with Freedonia Focus Reports. He conducts research and writes a variety of Focus Reports, and his experience as an analyst covers multiple industries.