The Impact of COVID-19 on Polyolefins: A Still-Emerging Picture

The polyolefin market is witnessing a period of low demand from its downstream derivatives. The continuing wave of capacity expansions in polyolefins led to oversupply and squeezed profit margins, further putting pressure on producers. For manufacturers, who were already reeling under supply chain disruptions caused by the U.S.–China trade war, COVID-19 further added lead time to cargo deliveries.

Polyolefin importers are trying to keep a condensed output, in order to shrink product inventory and keep their feedstock consumption at low levels. Some companies have delayed their feedstock shipments, while many others are still minimizing their spot purchases. Amid the COVID-19 pandemic, reducing global demand has led to decreasing global polyolefin prices, a process that began with the outbreak in China, who is the world’s largest importer of polyolefins.

The Initial Impact on China and Its Spread

As the pandemic grew, trading slowed down, which led to a decline in spot purchase demand in the European and Asian markets. Chinese plants and refineries reduced their operating rates, disrupting product flows. Weak demand will reduce imports of polyethylene (PE), polypropylene (PP), styrene, xylene and ethylene glycol (EG). Several North American chemical firms who had a robust consumer and production base in China, are reporting declining Q1 earnings. COVID-19 disruptions saw polyolefin prices sink after the Chinese government imposed a prohibition on land logistics, which led to increased inventory. Sales of polyolefin and its derivatives continued to remain sluggish in China’s domestic market, which weighed on polyolefin prices. Styrene producers responded by cutting refinery run rates to around 60% to 80% of capacity, while monoethylene glycol producers ran their facilities at around 70% to 90% of capacity in an attempt to surge their profit margin.

A Global Pandemic Sees Global Impacts

The North America polyolefin market has been affected by COVID-19. U.S. spot polyolefin prices fell in February as cracker start-ups and expansions in upstream fractionation capacity continue to boost already ample supply. Lower-than-expected demand due to delayed polyethylene (PE) and polyvinyl chloride (PVC) start-ups and subdued exports to Asia as a result of the then-emerging coronavirus pandemic also led to falling prices. Meanwhile, the Asia-Pacific polyolefin market was severely affected by COVID-19. After land logistics were disrupted in China due to the virus outbreak, downstream plastics and rubber demand was slashed. The high inventory forced manufacturers to sell their stock at a rebate in the spot market. In Europe, players in Italy have been affected the most, as the epicenter of the European coronavirus crisis. After the reduced demand from China after the initial pandemic outbreak, Chinese cargo was deviated to Europe causing major polyolefin oversupply. COVID-19 lockdowns across the world immediately afterwards led to a loss of export opportunities for European polyolefin players and, ultimately, a price decline.