[vc_row][vc_column][vc_column_text css=”.vc_custom_1526894961467{margin-bottom: 0px !important;}”]by Katherine White, Plastribution’s Commercial Director

Last week I attended the Polymer Sourcing conference in Barcelona where many of the presentations focused on the capacity expansions in the US based on ethane feedstock from shale gas.

Whilst the numbers for the capacity additions are eye watering there seemed to largely be consensus that the European market would not be dramatically affected.

Most of the product is expected to flow to China where demand is strongest and where, despite their intentions of becoming self-sufficient, there remains a large gap between demand and home production.

It was widely felt that Europe would largely be an ‘overflow’ market, with product offered only when there was excess supply or when price levels in Europe commanded a premium.

Moreover, it was felt that those European producers who have invested in the US would wish to carefully control the amount – and critically the pricing – of product flows to Europe. This was the experience in 2008 when the capacity expansions from the Middle East did not have the impact on price levels that was expected.  Despite headlines referring to a tsunami of product and predictions that price levels would halve, market prices softened only by a modest amount.

Of course, there is another view – although not reflected at this conference – that such huge capacity expansions will have a dramatic effect on the market and that prices will inevitably come under huge pressure.  It is hard to see how, in the short term at least, that until growth rates have chance to mop up the extra supply in the industry we will not see a period when prices soften significantly.  Producers margins have been extremely healthy over the past 2 years and they certainly have room to pass on reductions to customers. There are critical operational capacity rates at which plants need to run and it is likely that deals will become available to incentivise buyers to commit to product as producers strive to fill their plants.

There is also a big question as to how Middle Eastern producers will react. It is likely that some of these volumes currently sold to China will be displaced by US production.  Will they therefore target Europe as an alternative destination?  So even if US producers carefully control volumes through their European arms will Middle Eastern producers be so disciplined when under pressure to move volumes?

It is hard to conceive how such a massive increase in supply cannot be good news for polyethylene polymer converters when the volumes eventually start to flow. So, whilst those at the conference seemed largely confident that the European market would stay balanced and controlled I am not so sure.

Wishful thinking on their part perhaps?[/vc_column_text][/vc_column][/vc_row]

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