Global polyethylene, EVA markets to grapple with oversupply amid uncertain landscape in H2 2024

The supply overhang that began for global polyethylene markets in the first half of 2024 is expected to extend into the second half of the year, as several chemicals makers prepare to bring new capacity online in one region while another region will rationalize its output, according to an S&P Global Commodity Insights analysis.

Global virgin PE capacity is expected to exceed demand by 30 million mt/year in 2024, according to S&P Global Commodity Insights. The long supply will be exacerbated by new plant startups in China in Q4.

Three new PE plants are anticipated to begin operations in China, which would add 3.2 million mt/year of capacity to an already oversupplied market

PE resin from the US and Asia has been consistently more competitive in global export markets in 2024 to date, with the former region's producers targeting around 50% of their material for export according to market feedback.

To manage the excess supply, ExxonMobil will be shutting its 399,000 mt/year linear low density PE plant in Gravenchon, France, shifting business from a free-delivered basis to CFR, amid weak fundamentals and comparatively high regional feedstock costs. Market sources anticipate the shutdown to be fully complete sometime in late 2024 or early 2025, with the process having already begun.

The largest PE maker in Europe, LyondellBasell, on May 13 launched a strategic review of its European assets, including olefins and polyolefins. LyondellBasell did not specify whether the review would focus on potential divestments or closures of its regional facilities.

The company – which has assets in 10 European countries – has a regional nameplate PE capacity of 2.1 million mt/year as of Dec. 31, 2023, S&P Global data showed.

On the supply side in the Americas, no new capacity is set to come onstream in H2, but Formosa Plastics' Point Comfort PE facility will rotate several units through planned maintenances until November, according to a source familiar with company operations.

Supply tightness in the US domestic market amid improving export demand for PE is expected, LyondellBasell CEO Peter Vanacker said during a quarterly earnings call in late April.

"For the packaging sector, demand for nondurables has been consistent," Vanacker said. "Given that destocking across the packaging value chain seems to be complete, we look forward to the potential for restocking ahead."

Uncertain global conditions weigh on PE trade

Geopolitical, macroeconomic and weather uncertainty is expected to continue weighing on global markets in H2.

Availability of domestic material in Europe will be tied strongly to any shifts in trade flows, as competitively priced imports continue to pressure regional prices. European producers said they expect a continued lack of incentives to increase run rates, amid weak structural demand and a hand-to-mouth approach from consumers.

"I'm not optimistic. Sentiment needs to improve in Europe," a regional producer said.

Similarly, Asian market players await seasonal demand to pickup in Q3 as a counterbalancing factor for the continued supply glut.

However, as Chinese PE capacity is set to increase, buyers would rely less on imports, so PE import prices "will probably not improve by much," according to a producer.

Asian producers are also likely to face continued cost and production margin pressure, potentially resulting in operating rate cuts to avoid further profit losses, sources said.

In the US, Atlantic hurricane season begins in June and ends Nov. 30, with this year's season expected to be one of the most active on record. More than 20 named storms and 10 hurricanes are forecast as of May 21. About 90% of US PE is produced along the Gulf Coast.

Sustained interruptions to ethane-advantaged PE production, due to a hurricane or otherwise, are the only events that could cause a major shift away from the oversupply in H2, according Commodity Insights analyst Rob Stier.

Green shoots possible for EVA despite oversupply

Ethyl vinyl acetate, another thermoplastic which is produced at the same facilities as low density PE, is expected to face similar market challenges in H2 particularly regarding excess supply.

In Asia, producers continue to operate at full capacity, despite substantial production costs and high inventory levels.

"Demand remains robust for high VA grade," a Chinese producer said. "However, current prices are too low, pushing margins into negative territory."

The market is tempering expectations on the medium VA content shoe grade for the first part of H2 when demand will be at a lull, as regional shoe manufacturers typically see peak demand during the Christmas holidays.

In the US, President Joe Biden on May 13 announced an increase in tariffs from 25% to 50% for Chinese-manufactured solar panels and other commodities; EVA is used in solar panel production. The tariffs are expected to be imposed sometime in H2.

Market participants in the US expect improvements to demand stemming partly from government initiatives propelling the domestic solar industry, as well as from upcoming sports events boosting footwear demand. Supply is expected to remain robust, and rising ocean freight costs may undermine the competitiveness of Asian-origin product.

Sources anticipate stable EVA prices in H2 as demand recovery aligns with market supply, with US operating rates expected to be steady to higher.

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Chemical Trends H2 2024
This feature is part of our bi-annual report analyzing the biggest themes and trends that will dominate chemicals markets in the year ahead. Explore more features below, or to read articles looking at the year ahead for a wider range of chemical markets, visit Platts Connect

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