FPA Publishes Polyethylene Report
As part of IHS Markit’s (IHS) ongoing services to the Flexible Packaging Association (FPA), IHS wrote a follow-up polyethylene report based on the presentation given by Nick Vafiadis, Vice President, Plastics, IHS Markit, at the recent FPA Annual Meeting. The report covers key issues that are expected to drive the evolution of the industry in the near future and also includes the latest IHS Markit Economic and Energy analyses.
World Economy Short Term Outlook
According to IHS, world economic growth is set to further decelerate in the short term, but it should stabilize later this year. U.S. economic growth will likely remain above its potential on an average annual basis in 2019. Europe’s economy will likely remain weak, but a recession is unlikely this year. Japan’s economy is headed for another year of volatility and disappointing growth, and China’s economic growth should stabilize and see at least a modest rebound later this year.
IHS is anticipating that U.S. ethylene prices will move back to par with the rest of the world. This year, 2019, is a transition year, and higher ethane export capabilities are forecasted to push prices higher. IHS expects U.S. spot and contract ethylene prices to increase with higher ethane prices and as some of the current oversupply in the ethylene market is reduced U.S. prices for ethylene will begin to close the gap with Europe and Asia.
PE demand has been strong, but headwinds are developing, or it may be just normalization of demand. Global demand for PE from 2013-2016 grew at an average of 3.36 mmt per year with the growth rate of about 4 percent per year during that period. In 2017, demand growth spiked to 4.5 mmt or approximately 1.1 mmt over the previous 4-year average, and in 2018, demand grew by 5 mmt or 1.6 mmt over the 2013-2016 average. Some of the reasons why PE demand grew include a strong global GDP and China banning imported plastic scrap, so there is a greater need for virgin resin.
The key issues and trends for PE demand for 2019 and beyond include an economic slowdown that will impact demand growth in 2019/2020; China, the “global demand driver,” will be impacted by internal and external issues; the U.S./China trade war will impact demand, trade flows, operating rates, and margins; the sustainability movement will dampen demand growth; bag bans proliferating; “deselection” continues as major consumer packaged goods companies implement sustainable programs; and aggressive targets set by governments designed to increase the use of recycled content in packaging products.
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