Will the Polymer Demand be at the Tipping Point?
Polymer market producers were hit hard due to the restrictions imposed due to the lockdown. Before the advent of the COVID-19 pandemic, polyethylene producers enjoyed a lengthy, uninterrupted, margin since the industry was on the path of a growth trajectory. This growth was driven by multiple factors, including strong domestic and international demand that grew for years; snug market conditions aided by planned government policies. But since the lockdown, supply constraints were associated with shortages in the supply of raw materials.
Advantageous freight costs have encouraged countries to expand their exports and have limited the import of finished goods. With domestic supply bottlenecks easing down, the polymer industries have bounced back to their production levels. Along with the existing polymer manufacturers, there are new players entering the market providing competitive polymer prices. The market is becoming increasingly crowded as the new capacity builds up with current and new players contributing substantially in order to meet the soaring demand for polymer post-lockdown.
Polymer professionals expect the robust market dynamics of recent quarters to change in the near term as new capacity starts up causing stiff competition in the market. After surveying a few polymer-producing industries to get an idea about the polymer price change and demand in the future, much of the feedback from the market indicates that both may be near a tipping point.
There are reports which indicate that inventories are accumulating at warehouses. The manufacturers are experiencing signs of demand uptick but have indicated that they’re having difficulty passing on the latest price increases. We know that when demand is on the rise, so are the prices but the picture that we are witnessing is quite different.
Our industry experts believe that inflation and slow economic growth are contributing to this situation and they will begin to have an impact on the demand. This impact has not yet been recorded but we soon believe it to be on the verge of developing. As soon as the economy eases and gets back on its growth path, so will the demand and polymer prices. Yet PP and PE exports continue to be constrained by logistics to some extent, which may also limit their operating rates.
The bottom line is we believe that there is a range of interconnected factors affecting the PP & PE polymer grade prices.