Plastics and Chemicals Industry Perspective 1st Quarter 2018

Ethylene continues to capture market spotlight

By Kevin DuffyPE Resin compared to feedstock, crude oil and Natural Gas

Ethylene-related investments continue to be driven by global demand for petrochemicals.  Net petrochemical exports out of the U.S. were approximately $16 billion in 2016.  Market experts project exports to increase to $110 billion by 2027.  Fracking has led to increased supplies of ethane and a cost advantage for the U.S.

       Reduced crude oil prices caused many of the prospective investments to be reassessed.  Reassessing the investments caused some delays in projects, but the appetite for the low-cost supply of ethylene-related chemicals has remained high, and companies have continued to invest in ethylene based manufacturing.  The current wave of ethylene and polyethylene (PE) resin supply is anticipated to last for a number of years.  U.S. ethylene and PE capacities are expected to grow 34% and 40%, respectively, by 2019

       Much of the current supply is in the form of PE resin, which was in a net export position prior to the significant addition of new volumes.  As export volumes are forecast to increase substantially, PE prices will most likely fall both globally and domestically, although the market is in the early stages and the impact on market pricing has been minimal so far.  PE resin has historically followed crude oil prices.  However, it has recently been more closely aligned with natural gas prices. 

       To put current market events into perspective, an estimated $185 billion in new petrochemical-related projects are either in construction or planning, with chemical-related investments representing approximately 50% of all capital investments currently planned in the U.S.  While there may be issues along the way, the construction of facilities focused on petrochemicals, and specifically ethylene and PE, are likely to be one of the best stories for the U.S. economy over the next decade.

 

Kevin Duffy

Kevin Duffy is a Senior Valuation Director who specializes in the plastics and chemicals industries. He has valued numerous plastics and chemical-related companies in North America that are involved in distributing, compounding, and manufacturing chemicals, resins, films, sheets, and molds. Kevin received his B.A. in finance from Illinois State University, and passed the CPA exam in Illinois. Kevin has diverse business experience in accounting, manufacturing, distribution, and retail.