LLDPE (Linear low-density polyethylene)

LLDPE (Linear low-density polyethylene) Global Market Outlook

• The global demand is expected to grow at 2–4 percent CAGR through 2023–2026

• Asia will remain the key demand driver with an expected growth of 3–5 percent, due to the increase in per capita consumption of plastics

• Capacity to increase during 2023-2025 period with additions in the US, China, and other Asian markets. Overall, supply to be ample till 2026

LLDPE Industry Best Practice

Engagement models

• CPG companies generally outsource their packaging requirements to converters, as they helps them to focus on their core business

• Large-scale converters have high price negotiation power with the resin suppliers on the back of heavy annual volume

• Consortium buying is still in the nascent stage in the LLDPE market and is not a preferred model

Contract structures

Fixed Contract

• Length of contract: One year on an average

• Minimum volume in contract: >1,000 MT/year

Multi-year Contract

• Length of contract: 2–3 years. However, we have not observed multi-year contracts due to high volatility in the prices

Global Market Size: LLDPE

• The global LLDPE market is valued at $45 billion in 2021, and it is estimated to touch $44.1 billion by 2025. The demand would be driven by flexible packaging industry demand. Drop in LLDPE prices is the major contributor for drop in the market size in 2025 comparison with the 2021 price levels

• Global LLDPE prices decreased in 2019–2020 and market size witnessed a drop. However, due to firm prices in 2021, market size witnessed an uptrend in 2021. Prices are expected to witness a decrease in 2023 due to drop in consumer confidence index and high inflation which is expected to drop the market size of LLDPE

• Capacity addition is another major factor for a drop in the prices in the long term, ~7–8 MMT expected to come online in the next five years, which would increase negotiation power of buyers in the long term

LLDPE (Linear low-density polyethylene) Global Capacity–Demand Analysis

• Capacity additions are expected in the US and China. Even with these capacity additions, China is expected to be net importer of LLDPE during the forecast period. Increase in new capacities in the US could lead to increased exports into LATAM, Europe, SE Asia, and African countries.

Market Outlook

• Capacity Dynamics: The global LLDPE production capacity is expected to touch 53 MMT by 2026, driven by the capacity additions in the US, Asia and Middle East. Moreover, LLDPE and HDPE can be alternatively used in the same unit and due to better barrier properties, hence there is a huge surge in capacity additions

• Demand: The global LLDPE demand is estimated to grow at 2–4 percent, driven by film applications in the packaging segment

Engagement Outlook

• The North American market is predominantly contract based, and buyers prefer to source locally, due to higher cost of imported LLDPE

• Contracts are generally renewed annually

• In Asia, buyers engage in spot buying and source both within the region or from Europe/Asia, if arbitrage opportunities are available

• In Europe, the buyers source both within the region and from Asia/Middle East. Both spot and contract prices are used

• The suppliers are willing to enter into a contract, only if the minimum order volume is over 1,000 MT or sometimes over 2,000 MT

Industry Drivers and Constraints : LLDPE

Drivers

• Demand from Packaging industry: The demand for stretch and shrink films from the food and beverages, personal care industry to be the major driver in the upcoming years.

• Demand from healthcare Industry:. Growth in health care industry is expected to be another major driver. It is majorly used in medical bottles and devices packaging.

Constraints

• Europe and US recycling targets: The European Union has set its targets for recycling to over 40 percent by 2025, which is expected to curb the demand for virgin LLDPE in the market

• Drop in feedstock availability: The demand from gasoline is expected to drop across the globe in 2020-2021 period, which in turn would have an effect on the crude oil distillation process, through which naphtha is derived. Hence the availability of feedstock would be affected marginally which could have an impact on the growth of LLDPE in the short term

Cost Structure Analysis on LLDPE

• Price movements of ethylene have a considerable impact on the resin production cost and margins

• Supply demand dynamics play a significant role in Europe price movements