H1 plastics sales to remain low on destocking, ease in consumer spending: US DuPont

DuPont expects lower sales volumes in consumer electronics and semiconductors due to factors that include decreased consumer spending in he first half of 2023, executives at the US-headquartered company said Feb. 7.

Demand weakness, in particular,should continue in consumer-driven end markets through the first quarter, said CFO Lori Koch during a company earnings call.

DuPont makes a wide range of products, including polystyrene insulation, semiconductor chips, and thermoplastic polyurethanes used in automotive instrument panels, medical devices, and more.

As 2023 progresses, however, DuPont expects consumer electronics demand to stabilize, customer inventory levels to reach normal levels, and Chinese demand to improve, she said.

Electronics represent about one-third of the DuPont end-market mix, said CEO Ed Breen, with a key presence in consumer-based end markets, such as semiconductor chips, films, displays, and printed circuit board materials used in smart phones, personal computers, and tablets.

Automotive applications represent about 13% of DuPont sales, he said, including high-growth technologies, including batteries for hybrid and electric vehicles.

Although the key construction sector experienced a downturn starting in the second half of 2022, Breen said conditions in the US Southeast and Southwest are improving, but DuPont is seeing the effect of inventory destocking in its materials that go into big-box stores for do-it-yourself projects, he said. DuPont expects that destocking to end in Q2.

Logistics costs eased in H2 2022, and Breen said the company could start seeing an effect toward the end of Q2, but the company is not counting on a significant effect.

"We've baked very little into our 2023 business plan for any benefit," Breen said. "A little bit is in the second half of the year, but not much. When we start to see it, we'll highlight it obviously and look at our forecast again."

During the peak of the pandemic, freight rates reached record levels, but began softening in H2 2022.

Container shipping rates in early February are about 80% lower on the year, according to Platts data. Freight rates peaked in February and March 2022 before easing, with the most significant decline observed in H2 2022, amid lower demand and falling commodity prices, including fuel.

Platts is part of S&P Global Commodity Insights.

China

With the reopening of China after it lifted its "zero-COVID" policy, DuPont expects demand there to increase in late spring.

"We have talked to our 10 largest [printed circuit board] customers, mainly in China, and it looks like they're going to begin their ramp in the [Q2]. We're thinking more in the middle of the [Q2]," Breen said.

He added that China customers' PCB production usually runs in the high 70% utilization rate, but they have been running between 40% and 60%. The customers expect to be up to 60-65% from mid-Q2, and to ramp up from that level, Breen said.

In addition, smart phone demand is supposed to increase from 2022, he said, because of lower consumer spending.

"So I think just China coming back on its own ... is going to help with demand," he said.

As for semiconductors—for which shortages hampered global automotive production for the past two years—production had been running at around 95%, Breen said. Those units are running in the low 80%, which Breen attributed to destocking.

"Most of the chip guys are saying the biggest down quarter is [Q1]. We think it's the first and second quarter," he said.

Results

DuPont reported full-year 2022 operating EBITDA of $3.261 billion, up by 3% on the year, driven primarily by higher volume, as price increases of 7% throughout the year were mostly offset by higher costs for raw materials, logistics, energy, and labor, executives said.

Full-year sales volumes rose by 1%, with strong growth in semiconductor and water and industrial end markets, mostly offset by softness in smart phones and personal computing in H2 2022, and lower volumes from protective garments, as peak pandemic conditions eased in the US.

Q4 net sales slid by 4% on the year to $3.1 billion, driven mainly by weaker consumer electronics demand, Koch said, though Q4 operating EBITDA rose 1% on the year to $758 million.