US shale to stymie Asia’s polyolefins

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The lower-cost plastic expected to come from large deposits of shale gas in North America will pose significant new challenges for many Asian polyolefin producers, said speakers at Flexpo in Shanghai.

The new production, expected to become widely available in a few years, is a potential “game changer” that will make the U.S. the second-cheapest source of polyolefins in the world, after the Middle East, and complicate efforts by Asian plastics producers.

At least that’s the word from Robert Bauman, vice president of Houston-based consulting firm Chemical Market Resources Inc. Bauman spoke at the June 15-17 Flexpo conference in Shanghai, organized by CMR and Beijing-based China National Chemical Information Center.

Already faced with an expected flood of lower-cost polyolefins from the Middle East, many Asian plastics makers have adopted a strategy of trying to move up-market with differentiated or specialty products.

But that strategy may backfire, Bauman said. “Fifty different companies have the same strategy,” he told the Flexpo conference. “The market cannot support that.

“The U.S. companies are not only going to export commodities, they are going to export differentiated products. Asian polyolefin producers will need to focus more on differentiated and specialty grades, but that will be become increasingly difficult.”

After seeing very little new investment in U.S. polyolefins in the last decade, as the region lost cost-competitiveness, several new facilities totaling between 8 billion and 15 billion pounds of production are likely to be added by the middle of the decade as a result of the shale gas discoveries, Bauman said.

“The next round of export-oriented feedstock-advantaged expansions are in the United States,” he said. “Shale gas has totally changed the North American olefins and polyolefins industry.”

A Flexpo speaker from China’s largest polyolefins producer, state-owned Sinopec, said lower-cost resin from outside China will pose challenges, but the company doesn’t see specialty polyolefins as key to its own strategy.

“Specialty polyolefin is not the solution, since many companies produce these. We think the only solution is high-performance polyolefins with low cost,” said Jinliang Qiao, vice president of Sinopec’s Beijing Research Institute for the Chemical Industry.

The firm has focused heavily on research to make grades of polyolefins like biaxially oriented polypropylene film, PP pipe and PE-100 pipe-grade resin, he said.

But Bauman said the PE-100 pipe resin market, which many firms see as being higher-value, including for exports to feed China’s building boom, may not be what everyone expects.

“Everybody is exporting to China but China is building three plants that will have PE-100 capability. That specialty product will not be a specialty product if everybody is producing it,” he said.

The ethylene vinyl acetate copolymers market faces the same issues, he said: “You will have a surge of people going into EVA copolymers and the margins will collapse,” Bauman warned.