Video: Outlook for the global polyethylene market
Interview of Remko Koster on the outlook for the global polyethylene market.
How will polyethylene demand develop in the next five years?
Polyethylene demand will develop at a healthy rate in the next five years. There's still a lot of potential in many regions, with a lot of potential for polyethylene demand growth around the world. Obviously, this will not be in the mature economies such as in Europe, which will grow at an average of about a percent, but overall global growth will be between 4-1/2% and 5%.
In North America, additional supply will also support further demand growth and low energy prices as well. So, the growth rates will be closer to 3% on average. But the biggest growth, even in spite of the weaker economic development in the emerging economies, will still come from Asian countries, the Middle East, and in Africa-where you will see solid growth in numbers between 5% of up to 8% on average in the next five years, for instance for India.
Where will polyethylene capacity be added and will it match demand growth in the next five years?
Polyethylene capacity will be added in various regions over the next five years. People will see a lot of capacity starting up in North America, and that will kick off in 2016. It will peak in 2018 and that, of course, is supported by the shale gas, which reduces the fiscal cost and gives great economics for new projects. But at the same time, we shouldn't forget that there's still a lot of capacity being added in other regions, such as in the Middle East and even in countries like Iran and Saudi Arabia-there's still capacity being added in the next period to come.
Furthermore, more driven by demand than by the advantage fiscal cost, there is also a lot of capacity being added in China, which also is based on favorable economics from coal to olefins. So overall, we are seeing a lot of capacity additions in various regions around the world. And actually, this will surpass the amount of demand growth that we will see in the next five years. So, we expect to see operating rates coming down somewhat in a period 2016 to 2018, as capacity growth will outpace demand growth.
What could prevent the PE market from being at overcapacity in the next five years?
There two major reasons that could lead to deviations from this oversupply situation in the next few years. First of all, there's a lot of capacity starting up in various regions, such as in North America, the Middle East, and in China. If we would expect some delay in the startup of these new plans, that could lead to a much tighter market situation-not an oversupplied market in the short run.
We have seen this happening in the period of 2009 in 2010 in the Middle East. Our projects were delayed to up to one or two years in some cases. So if you would imagine a delay of up to half a year, that would already increase operating rates for producers by a few percent and lead to a more balanced market situation.
Secondly, if you would see for a longer period of time low oil prices, that would also give a boost to the demand of polyethylene by enhanced GDP growth in the next years to come. But also because of favorable competitive position of plastic versus traditional packaging material such as steel, and glass, and paper, and that will also give a boost further to polyethylene demand and would be to much more balanced market situation.
Remko Koster is director, polyolefins Europe & Africa, IHS Chemical
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