Shale gas shakes up PE market

By Frank Esposito
Senior Staff Reporter

Published: February 23, 2012 6:00 am ET

Related to this story

Topics Materials, Suppliers

Natural gas can be used as a feedstock to make ethane, which is then used to make plastic feedstock ethylene. “Natural gas has only one-third the cost of crude oil as an energy source,” Vafiadis said. “And this is not a short-term phenomenon.”

This price differential is “a significant advantage” for U.S. PE and ethylene producers, even though only 33 percent of global ethylene is sourced from ethane, he added. Development of shale gas resources has caused a major increase in U.S. natural gas reserves, which now are estimated at 100-150 years of supply.

This development has been made possible by use of hydraulic fracturing and horizontal drilling. Vafiadis said that environmental concerns about these methods “won’t slow production.”

One challenging side effect, however, of increased ethane use is its lower production of propylene and butadiene feedstocks. Prices for these materials — used to make polypropylene, ABS and high-impact polystyrene — could be higher as a result, he said.

Vafiadis added that the view of the North American PE market has changed dramatically from just five years ago, when North America “had no feedstock advantage, domestic demand was shrinking and capacity was moving away from North America. “We thought the U.S. would be a net importer of polyethylene, but now we’re attracting major new investments in the U.S.”

Abundant feedstocks will allow North American PE to have strong demand in export markets for the next several years, but that doesn’t necessarily meant that domestic PE prices will decrease. “Regional supply issues and ethylene outages are driving the [resin] price,” Vafiadis said. “Ethane is no longer linked to natural gas but more closely linked to competing feedstocks.”

Currently, Vafiadis said that PE prices “bottomed out” in November, but may be heading up in the first quarter of 2012, especially since inventories are tightening at the producer level.

Looking ahead, Vafiadis estimated that North American PE demand would grow at a “sub-GDP level” of 2.2 percent annually from 2011 through 2016. During that period, PE use in the pipe and profile market would fare best, with growth of almost 6 percent.

Global PE demand is expected to be stronger, averaging 5 percent during that period. That stretch also will create record profits for North American PE makers at a time that previously was expected to be a trough period.

New capacity in the Middle East and China will be absorbed by demand, Vafiadis said, creating a less dramatic impact on pricing and margins. Packaging and film markets also will continue to recover “at moderate pace,” he said.

The PP market will continue to struggle, as the shift to light feedstocks “has taken a tremendous toll in propylene supply,” equaling 6 billion pounds of propylene being taken out of the market place.

PP “has become increasingly expensive vs. other resins it competes with, whereas before it had been affordable,” Vafiadis said. Pricing volatility also is expected to continue in the PP market, as evidenced by the 22-cent increase nominated by suppliers for Feb. 1.

“Demand levels [for PP] are decreasing, volatility is increasing and U.S. prices are the highest in world,” Vafiadis explained.


Comments

Shale gas shakes up PE market

By Frank Esposito
Senior Staff Reporter

Published: February 23, 2012 6:00 am ET

Post Your Comments


Back to story


More stories

Sale of Romanian PVC producer Oltchim assets postponed again

April 23, 2014 1:35 pm ET

The long anticipated privatization of insolvent Romanian PVC producer Oltchim has been postponed yet again, this time until mid-May.    More

Image

China's mold making sector plodding forward

April 23, 2014 1:25 pm ET

With the Dow Jones Industrial Average reaching new highs, China's similar indexes are still hovering at a low level. What does the economic barometer ...    More

Image

TSM growing into a second generation of leadership

April 23, 2014 12:50 pm ET

This is a time of great growth for the Dundalk, Ireland-based TSM Control Systems, a company that has created a name for itself since 1977 by...    More

Image

CPM Extrusion, ECON launch new line of underwater pelletizers

April 23, 2014 11:25 am ET

CPM Extrusion Group and ECON GmbH unveiled their brand new EUPC line of underwater pelletizers today at ChinaPlas held in Shanghai, China.    More

New PolyOne Shanghai center to focus on speed-to-market in Asia

April 23, 2014 11:07 am ET

PolyOne Corp. is expanding its operations in China with a new “Innovation Center” in Shanghai. The center will focus on research and devel...    More

Market Reports

Thermoformed Packaging 2014 Market Review & Outlook North America

This in-depth report provides analysis and discussions of economic and political conditions, market trends, legislative/regulatory activity impacting supply and demand, business opportunities and threats, materials pricing, manufacturing technology, as well as strategies being implemented by thermoformed packaging companies. In addition, there are reviews of 25 leading thermoformers in the packaging segment, assessing their growth initiatives and performance metrics over 10 years.

Learn more

Automotive Market Review and Outlook 2014 The Americas

This 75-page report features in-depth analysis of the automotive industry for the Americas. It includes discussions of market trends, legislative/regulatory activity impacting production and threats as well as design strategies being implemented by the major automakers. Detailed charts and data tables outline North American automotive production over the last five years.

Learn more

Plastics Building & Construction Market Review and Outlook 2014 with MS Excel chart data

This report provides in-depth analysis of the plastic building and construction market for North America, including discussions of trends, opportunities, threats and the latest developments in construction trends that impact plastics processors.

Learn more

Upcoming Plastics News Events

May 6, 2014 - May 8, 2014Plastics in Medical Devices 2014

May 12, 2014 - May 12, 2014Plastics News Brazil Pharma Summit

September 10, 2014 - September 12, 2014Plastics Caps & Closures 2014

February 3, 2015 - February 7, 2015Plastics News Executive Forum 2015

More Events