US-Based Dow Jones Anticipates High PE Demand to Persist in 2022

According to the company's CFO on Wednesday, Dow forecasts polyethylene (PE) demand to stay steady in 2022 as the global economy continues to rise at rates not seen in more than a decade. At the Citi Basic Materials Conference, Howard Ungerleider, Dow CFO, offered his remarks, explaining that the global economy will rise by 5% in 2022, a level last seen in 2005. 

Other indicators hint at a sustained rise in PE demand. The Institute for Supply Management's (ISM) manufacturing purchasing managers' index (PMI) remained substantially above its 10-year average. He added that the demand had been strong across the world. 

The post-pandemic economy has been marked by persistent PE demand. During a recession, demand often drops by 3-5 percent, according to Ungerleider. Instead, it increased by 3-5 percent throughout the epidemic because of changes in consumer preferences. In 2021, it is expected to increase by 5%. The GDP predictions for 2022 indicate that there will be an extra demand for supplies. According to Ungerleider, every one percent increase in GDP growth necessitates the construction of two to three world-scale PE facilities.

Dow admitted that their prediction for ongoing expansion has some flaws. Because of rising raw material costs and reduced pricing for PE and co-products, the company announced earlier on Wednesday that its Fourth-quarter earnings before interest, tax, depreciation, and amortisation (EBITDA) will be USD 150 million-200 million below the current consensus.

According to Ungerleider, Dow's packaging and speciality plastics division had its margins drop due to rising costs and falling pricing. However, a drop in demand was not included in Dow's Fourth-quarter projections and the business projects to stay steady in the coming months.

According to Ungerleider, order backlogs are still substantial. Inventory-to-sales ratios are much lower than the 20-year standard. Furthermore, global demand increased by double digits in November compared to October. December's order loading in Dow's books is higher than November's. This deviates from past trends, as Dow usually slows in the middle of November through year-end.

Outlook on Oil and Gas

Higher crude prices, according to Dow, will encourage firms to dig extra wells, resulting in increased oil and natural gas supply. Dow and other North American petrochemical companies value natural gas because it establishes a price floor for ethane, the region's primary feedstock. In addition, Dow and other North American producers possess a price advantage over most of the industry, which depends primarily on oil-based naphtha as a feedstock when oil prices are high, and natural gas costs are low as Naphtha is used in two-thirds of the world's crackers.

According to Ungerleider, natural gas costs are expected to be USD 2.50-3.50/MMBtu (One Million British Thermal Units) in the medium run. He did not give the projection a timeframe. It is, however, significantly below Henry Hub's forward month's contracts, which indicate gas prices persisting over USD 3.50/MMBtu through March 2023.

The impacts of the Omicron variant might cause energy prices to fluctuate because of travel limitations, lowering the demand for fuel. The Omicron mutation was only named a week ago. Ungerleider estimates that it will take three to four weeks to uncover more about how the disease might influence the economy.

However, he predicts that profits will fall somewhat in 2022, while sales volumes will increase. Companies will have an incentive to run their operations harder since Dow forecasts demand to remain steady. This might put their plants under strain, resulting in outages.