Profits from making petrochemicals in Asia have fallen to their lowest in months because the unrelenting trade battle between Beijing and Washington stifles Chinese demand for chemicals and plastics only as waves of recent production begin to come online.
The global output capability for polyethylene, a key ingredient for plastics used in everything from the piping to toys, is expected to surpass demand by three million tonnes by the tip of 2020, in comparison with overcapacity of 545,000 tonnes in 2019, data from commodity consultancy Wood Mackenzie confirmed.
That comes as new manufacturing is ready to crank up in China, South Korea, and Malaysia, though the United States and the Center East will account for more than half of the brand new volumes.
Although analysts say polyethylene revenue margins are already at their narrowest in round seven years, ballooning may drive them even lower – inserting high-cost producers under critical strain.
The spread between values for polyethylene and feedstock naphtha gives an estimate of how a lot of profit petrochemical makers can make.
Based on information from the Korea Petrochemical Industry Association (KPIA), the average unfolds between high-density polyethylene (HDPE) and naphtha feedstock prices in the second quarter was $421.34 a ton – the lowest quarterly average since 2012.
And the strain is rising. The average spread for HDPE – used to make bottle caps, detergent tubs and piping – was down to $414 a ton in the week ended Aug. 16.
Meanwhile, a plastic often called linear low-density polyethylene (LLDPE), utilized in several products together with food and non-food packaging, is similarly weak.