Polyethylene heavyweight Dow expects “momentum” to extend through the end of the year and into 2027, helping to support higher PE pricing.
During the company’s third-quarter earnings call Oct. 22, executives cited elevated feedstock costs, declining inventories and constrained production resulting from the US war in Iran as support for a cumulative 12 cents in nominated price increases for October and November PE contracts. September contracts rose by 5 cents/lb, CEO Karen Carter said.
Although overall Q3 sales volumes fell by 1% on the year, Carter pointed to war-related production disruptions in the Middle East. Excluding those constraints, quarterly sales volumes in Packaging and Specialty Plastics grew by 2% on the year, she said, “and we’re getting more growth in the fourth quarter as well.”
Carter cited September data from the American Chemistry Council (ACC) as evidence of tightening supply, with inventory down by 5 days of supply and 400 million pounds. This represents the largest draw on PE stocks in more than a year, she said.
PE spot prices also rose ahead of the earnings call – increasing by 6 cents/lb on the week. “So we should go into 2027 with that momentum, and we expect from an oil-to-gas ratio that it will remain constructive,” she said. “And of course, we’re going to continue to double down on our advantaged feedstock capacity here in North America.”
Feedstock prices on the rise
In addition to war-related supply constraints, upstream crude oil and naphtha costs were higher globally during the quarter. Carter noted that Q4 pricing and margins will partially depend on how far feedstock prices rise.
Global PE prices are set by naphtha-based production, Carter said, so with crude and naphtha prices still elevated, the oil-to-gas spread will remain well above prior-year averages.
Over the past decade, North American ethylene and polyethylene production capacity has grown significantly, as Dow, ExxonMobil, Shell and others built massive new plants to take advantage of cheap, plentiful feedstock unlocked during the shale gas boom.
Natural gas liquids (NGLs) – primarily ethane – can be fed into steam crackers to produce ethylene more efficiently and cheaper than naphtha sourced from crude oil.
US ethane prices are “a bit on the rise as well,” Carter said, outpacing benchmark natural gas price movements. She added that every 3 cents/gal of higher pricing for ethane requires about 1 cent/lb of PE to cover that cost, and Dow’s Q4 guidance assumes ethane prices in the mid-high 20s cents/gal, “marginally lower than where we sit today.”
Carter attributed the ethane price increases to growing exports, as steam crackers in other global regions are favoring ethane in their feedstock mix, amid elevated crude oil prices. In addition, Golden Triangle – a joint venture between Chevron Phillips Chemical and QatarEnergy –.plans to start production at its new Texas ethylene/PE complex in early 2027, increasing demand for ethane.
Operating rates, plant updates
Carter estimated that global ethylene operating rates are in the low 80s%, though Dow believes plant utilization could return to mid-cycle level by the end of the decade, around the time the company’s net-zero cracker in Alberta is expected to start up.
Original industry estimates put necessary capacity rationalization at 10% globally to return to those rates, she said, and about half of the required amount has already been announced, with an additional 8% being speculated.
“You’re seeing the rationalizations and of course we know that there’s capacity that’s coming online,” Carter said, but PE demand continues to grow faster than GDP. Dow has repeatedly referred to this measure as justification for continued long-term investment in vast new ethylene/PE capacity despite a multi-year slump in demand and global overcapacity.
She also pointed out that demand in higher-value segments is growing well above the rate for GDP, including AI infrastructure, home and personal care, electronics, flexible packaging and mobility.
Dow also provided an update on its steam crackers in the Middle East and Asia.
- Equate JV in Kuwait: one cracker running at full rate, and several derivative units idled due to storage limitations
- JV in Thailand: one cracker restarted, second one has planned maintenance
- Sadara JV with Saudi Aramco, partially restarted with a cracker and PE trains online, but liquids units remain down due to persistent logistics constraints
By the numbers
- Dow’s net sales were $11.3 billion, up 13% on the year, reflecting increases in all operating segments
- Packaging and Specialty Plastics net sales were $5.8 billion during the quarter, up 18% on the year. Local prices increased by 17% on the year, primarily driven by higher prices across both businesses in EMEAI and the US and Canada
