By: Frank Esposito
October 10, 2012
AKRON, OHIO (Oct. 10, 2:30 p.m. ET) — Hope and fear are colliding in North American resin markets in 2012 — and they might be doing the same in 2013 as well.
Growth rates for major commodity and engineering resins weren’t all that great in the first half of the year. But major new feedstock expansions on the way for ethylene and propylene feedstock — and for polyethylene resin as well — are keeping hope alive.
The fear factor comes in as economic uncertainty has prevented many of the region’s plastics processors from expanding their businesses in ways that would lead them to increase their resin buying as well.
Plastics News recently checked in with executives and consultants who are involved with most commodity and engineering resins to get their perspectives on what the months ahead might hold. Here’s what they had to say:
There’s going to be a whole lot of new PE capacity heading to North America in the next several years, thanks to low-cost ethylene being derived from newly developed natural gas resources. That good news is being tempered somewhat by recent low growth rates for U.S./Canadian PE. Combined sales of the three major PE types basically were flat in the first half of 2012, according to the American Chemistry Council in Washington.
So do PE makers know something we don’t know?
PE leader Dow Chemical Co. “doesn’t expect low domestic growth rates to continue,” according to an email from Greg Jozwiak, North America commercial vice president for Dow Performance Packaging’s hygiene and medical and polyethylene businesses.
“In fact, we see demand growth to accelerate in 2014 and 2015, as the global economies begin to recover. We also expect that widely available, low-cost shale gas will reinvigorate the U.S. manufacturing sectors, which will increase domestic PE resin consumption,” Jozwiak said.
“Any excess polyethylene capacity that isn’t consumed domestically will be used to support the export markets. This is to be expected since North America is considered the second-lowest-cost production region in the world.”
Most market watchers agree that North America’s PE export rate — which was about 21 percent last year — will have to improve in the years ahead to avoid the market being swamped with unneeded resin.
“My personal belief is that there’s way too much capacity coming on for polyethylene,” said Robert Bauman, president of Polymer Consulting International Inc. consulting firm in Spring, Texas. “The U.S. will have to be a tremendous exporter of polyethylene.
“This could force higher-cost producers out of business and could lead to a possible resurgence of North American processing.”
“The challenge going forward is new capacity,” added Mike Burns, a PE market analyst with Resin Technology Inc., a consulting firm in Fort Worth, Texas. “One interesting thing is that if you go back to 2008 and 2009, the U.S. was one of the top three exporters to China of HDPE and LLDPE, and now we’re seventh. So, one of our biggest customers is buying from someone else.”
Based on current demand patterns, Dow’s Jozwiak said that his firm expects overall U.S. PE demand to finish with growth of 2 percent to 2.3 percent in 2012. That would be an improvement over the first half, when high density PE sales grew 1 percent in the U.S. and Canada, while low density PE fell about 1 percent and linear LDPE fell 2 percent, according to ACC.
Pipe and conduit provided a bright spot for HDPE with sales growth of 10 percent, thanks to their use in shale gas wells and infrastructure.
For LDPE, sales into non-packaging film jumped about 9 percent, while LLDPE sales were lifted by sales growth of almost 15 percent in injection molding applications.
Dow, based in Midland, Mich., has experienced “steady growth” in the packaging market, Jozwiak said, despite economic challenges that continue to impact North America.
Flexible packaging, specifically meat and cheese packaging and liquid and semi-solid packaging, has performed well in 2012 and is expected to continue growing in 2013, he added. New applications for stand-up pouch formats continue to make inroads in replacing conventional materials like glass and metal packaging, Jozwiak said, and packaging of fresh-cut produce is also expected to continue growing in 2013 as retailers continue to take advantage of the benefits of packaging fresh food to reduce food spoilage.
He singled out packaging as “a market that is constantly innovating and reinventing itself.”
“If you walk through a grocery store today and then go down the same isles again in six months, you’ll find a great deal continues to change, especially toward flexible packaging,” Jozwiak said. “The packaging market continues to offer innovation after innovation, with brand owners pushing themselves and their suppliers to do more with less.
“It’s exciting to be a part of a market with so much untapped potential for value, innovation and the ability to truly make it possible to feed the world,” Jozwiak said.
Moving into 2013, he said, PE packaging “continues to evolve,” with new applications following trends like single-use packaging, easy-open packag- ing and a continued focus on sustainability. He said a new flexible PE pouch for baby food is “one of the most exciting new applications” for 2013. This new application eliminates the use of glass and the potential safety hazard it presents, creating a safer, fresher option for feeding babies and toddlers, he said.
Dow also continues to see more innovation in fresh-food PE packaging “as it becomes apparent that small amounts of packaging can significantly impact shelf life,” Jozwiak said. “Polyolefin-based film designs can extend the shelf life of cucumbers from three to four days to almost two weeks. Convenience packaging of produce also continues to grow, facilitating more-healthy, on-the-go snacking options.”
But for these new applications to take hold, the North American PE market will have to overcome economic uncertainty and volatility in resin pricing.
“After 2008 and 2009, we saw a very cautious group of plastics people,” said Burns at RTi. “Volatility continues to be an issue for them.”
At PCI, Bauman said he doesn’t think regional PE growth will be above 4 percent for the next few years.
“The economy hasn’t recovered and spending is down,” he said. “But there’s a lot of pent-up demand out there for buying products made of polyethylene.”
Dow will do its part on the new-product front later this month at the Pack Expo International trade show in Chicago, Jozwiak said, by launching a new high-performance LLDPE, several new LDPE grades and a new laminating adhesive grade, as well as several new tools to help processors and other members of the packaging value chain make their development efforts a little easier.
In pricing, North American PE prices for 2012 are down about 3 percent through August, based on average selling prices for blow molding grades used for dairy products.
“Regardless of what PE sales growth is, those producers that are fully integrated are enjoying tremendous profit margins right now,” said Phil Karig, managing director of the Mathelin Bay Associates consulting firm in St. Louis. “Ideally, producers want to sell pounds and have a good cost position, but they can hold their nose if sales are lackluster and they still have the cost position.”
The North American PP market continues to go through as many identities as a typical American teenager.
For much of the 1990s and early 2000s, PP took market share away from competing commodity plastics and even some engineering resins. But then the region’s shift from crude oil to natural gas as a feedstock — with natural gas making less propylene feedstock — gradually made PP higher-priced and subject to the whims of fickle propylene pricing.
After peaking at 19.3 billion pounds in 2007, North American PP sales checked in at only 16.4 billion pounds last year, a drop of 15 percent. But now, domestic PP sales are improving, and a rush of on-purpose propylene supply — also made possible by new natural gas supplies — is giving PP makers and processors hopes for the near future.
“Our view is that, year to date, PP sales are up 3.5 percent vs. last year,” said Robert Nadin, commercial and supply vice president at PP maker Braskem America of Philadelphia.
“The quandary is that the fourth quarter of last year was very strong, so it will be hard to match. We might end up 2-3 percent up for the year. Some traditional seasonality is being washed out by volatility.”
Nadin added that this year’s North American PP market has been helped out by disciplined action on the part of Braskem and other PP makers to reduce inventory, taking unneeded material off the market. Longtime industry executive Craig Blizzard, now vice president of Blizzard Consulting Group in Chevy Chase, Md., agreed that the North American PP market “is very orderly today.”
“The industry is managing production much better than it was five to 10 years ago.”
On the demand side, Nadin said that in 2012, “the big story for polypropylene is the strength of the auto segment.”
“Production [in auto] has held up more than others,” he said. “There’s more plastic now in each vehicle, and we’re going to see large growth in auto builds.”
PP packaging, by comparison, “is largely flat,” Nadin said. “Some applications have been phased out, but flexible [PP] packaging is up several percent.”
Another area of the North American PP field that could see some improvement in 2013 is the export market, especially with resin prices declining. Exports accounted for 14 percent of regional PP sales as recently as 2009, but last year generated only about 6 percent — less than 1 billion pounds — of total sales.
At RTi, PP market analyst Scott Newell agreed that PP has seen some opportunities in automotive and packaging, but he added that the material still faces quite a few challenges.
“We’re not seeing a lot of deselection of other materials in favor of polypropylene, even with prices where they are,” he said. “Next year, polypropylene in general will follow the economy. It’s not a GDP-plus product anymore. It’s more in line with [gross domestic product], and that’s a combination of pricing and a maturing market.”
Blizzard added that PP in North America “no longer is considered the material of choice.”
“It’s more a necessity,” he said. “[PP] is used in areas where no alternative has been identified. Otherwise, people are trying to use polyethylene. There’s a widespread belief that the availability of ethylene-based products is a good economic decision, because of the increasing availability of ethylene.”
New propylene supply could lift the market out of these doldrums, with about 3.5 billion pounds of on-purpose capacity set to come on stream in the next few years, including 1 billion pounds by the end of 2014.
“On-purpose propylene could reduce [price] volatility and could improve the use of polypropylene,” said Braskem’s Nadin. “Our customers say that volatility is a bigger issue than the price itself. If PP [pricing] is more in line with other thermoplastics, customers might believe that can be sustained and that might help their business.”
“Polypropylene hasn’t been a fun industry for the last several years,” added RTi’s Newell. “The ethane advantage hurt propylene, but the light at the end of the tunnel is on-purpose propylene. That billion pounds [of new propylene] certainly helps. It could make pricing less volatile.”
“If all these [propylene] projects come on stream, there will be a substantial improvement in the polypropylene market,” added Blizzard. “There are still things polypropylene does better than other polymers.”
PCI’s Bauman said even new capacity wouldn’t be enough to equal propylene shutdowns and refinery capacity lost to switching to ethane-based products in recent years, but he added that economic growth could lead to more PP use in areas that have been weak in recent years, such as appliances and carpeting. At current demand expectations, Bauman said North American PP operating rates should be in the high 80s in 2013.
Nadin estimated that regional PP operating rates currently are around 87 percent, but that “with any decent demand, [rates] could be up 2 percent and could be approaching 90 [percent] in 2013.”
Braskem improved its feedstock situation in 2012 by acquiring a propylene splitter from Sunoco Inc. The splitter is adjacent to Braskem’s PP plant in Marcus Hook, Pa. Braskem bought the plant from Sunoco last year.
“We’re very happy with the splitter,” Nadin said. “We have enough propylene to run at full rates. It’s a good outcome for Braskem.”
Officials at Braskem are looking forward to seeing “consistent growth across all segments” of PP in 2013.
“We’re much more bullish about the business for 2013,” Nadin said. “Volatility has reduced in the second half [of 2012], and that’s allowed us to position ourselves in other markets.”
North American PVC makers are finding hope for 2013 in continued strong exports and a moderate rebound in the U.S. construction market.
“It’s a good feeling compared to what we’ve seen before,” one PVC-making executive said. “PVC should continue to grow modestly for the next two to three years. And exports remain significant because we have growth this year, and last year was a record amount. That’s a positive story.”
The first half of 2012 saw U.S./Canadian PVC sales climb almost 4 percent. Domestic sales were up almost 4 percent, with exports up slightly more than 4 percent, according to ACC.
The construction news also is encouraging. Through August, U.S. housing starts were on pace to total about 725,000 in 2012, according to data from the National Association of Home Builders in Washington. That would be a jump of about 19 percent vs. last year’s total — even if it’s a far cry from the almost 1.4 million starts recorded as recently as pre-recession 2007.
“There was an early start to the construction season this year because of mild weather, so building has been strong,” said RTi PVC analyst Mark Kallman. “Builders also have been able to build later into the year because of the mild weather. The question is whether it will continue.
“Construction is along the same lines as automotive. There’s a lot of pent-up demand. People are getting the opportunity to secure home loans at low interest rates.”
“Housing had come down so far that [year-on-year] comparisons have to be favorable,” added Karig at Mathelin Bay.
“And even though the statistics are up, you have to wonder if it’s really a dead-cat bounce or if it’s real growth.”
“The housing market has found bottom and is now pulling itself up,” said the PVC executive, who asked not to be identified. “But it’s still slow growth, not a hockey-sticklike improvement.”
The role of the export market in North American PVC also has changed a lot in recent years. Strong global demand and low-priced, natural gas-based feedstocks helped keep North American PVC makers afloat in the years after the recession, as domestic demand plummeted. Exports accounted for only 10 percent of U.S./Canadian PVC sales in 2007, but by last year that had climbed to almost 40 percent.
With U.S. construction improving, that rate was down to 34 percent in the first half of 2012. But market watchers said they expect exports to continue to be a large component of regional PVC sales.
“The export market is a lot higher than what it traditionally has been, and that’s likely to continue,” the PVC executive said. “North America has a cost advantage because of natural gas. That’s made us a low-cost chemical manufacturer. We’re shipping a lot of PVC to South America and to parts of Asia and Eastern Europe.”
“There’s no question that low-cost feedstocks on the [natural gas] ethane side have helped PVC,” said Kallman at RTi. “One-third exports might be how the market is going to roll out going forward.”
North American PVC sales growth could be in the mid-single digits in 2013, according to Karig. Both Kallman and the PVC executive said the year might come in closer to low-single-digit growth. The executive also expects North American PVC operating rates to remain in the mid-80s.
The executive also stressed that market discipline among both PVC suppliers and processors is important for the material’s continued success.
“We’re encouraging everybody to run with good business fundamentals right now,” he said. “We all need to be margin-oriented, not volume-oriented.”
The North American PET market continues to grapple with what it sees and what it doesn’t.
The market — and many residents as well — continue to see a lot of PET bottles being used throughout the region. But those bottles are thinner, for reasons both economical and environmental, and as a result use less PET.
The end result for PET has been very low growth rates in recent years, reaching low single-digits at best. Market watchers said the same story could be repeated in 2013.
“Most of lightweighting has run its course,” said Mark Adlam, North American business director for PET maker M&G Group of Houston. “But a lot of applications already are in PET, so we’re seeing some overall market saturation without a lot of big conversions.”
North American PET growth could be as high as 3 percent in 2013, according to John Maddox, president of the SBA-CCI Inc. consulting firm in Jacksonville, Fla. The flagship carbonated soft drink sector, however, could see demand losses, as companies in that market “have quit promoting their product,” he said.
Some carbonated soft drink bottles also have been downsized from 2-liter sizes to 1.5 liters, Maddox added. Some single-serves sizes of those bottles have shrunk from 20 ounces to 16, with some sports drinks slipping from 32 ounces to 28 ounces. Even materials like household cleaners in some cases have shifted from a 48-ounce bottle to one of 42 ounces. And all of these smaller sizes, which often are sold at the same retail price as the previous larger size, use less PET per bottle.
A former PET executive added that high gasoline prices “are killing single-serve [PET] sales.”
“If you just spent $100 on gas, you’re not plunking down $2 for a pop,” he said.
Market watchers expect bottled water to achieve low-single-digit growth next year, with sales of sports drinks checking in slightly higher than that.
“Sports drinks are doing OK, but water is still the main story driving growth,” said Adlam at M&G. “A lot of people are conscious about their diet.”
Mathelin Bay’s Karig added that current consumers “might not buy that 20-ounce soft drink, but they might still buy bottled water at a low price.”
Growth in flavored and sparkling waters also could offset slower consumer switches from carbonated soft drinks to bottled water, said the former PET executive, who asked not to be identified.
M&G is doing its part for PET industry growth, by moving ahead with plans to build a massive new resin and feedstocks plant in Corpus Christi, Texas. The plant will have more than 2 billion pounds of annual capacity of both PET and purified terephthalic acid feedstock. No date has been set for the start of construction of the plant, which will greatly improve M&G’s feedstock integration.
Some in the industry have questioned the need for such a large plant when PET growth rates in the region are so low. Adlam said M&G “looks to take a significant part of the domestic market” with the new plant, while also exporting more. The plant would make more commodity-type grades of PET, with more specialties being made at M&G’s plant in Apple Grove, W.Va.
In the near-term, however, North American PET could be affected by tariff-free imported PET entering the U.S. from Oman and Egypt. Imports now account for 10-15 percent of all PET consumed in the region, a level that Adlam said was high when compared to historical levels.
Market watchers said regional PET operating rates should be in the mid-80s in 2013. The former executive added that feedstock supplies could be tight next year, especially for paraxylene, which could lead to higher PET prices. Through August, North American PET prices were roughly flat from their January levels.
One area that could provide unexpected growth for PET in 2013 is thermoforming. Adlam said that PET “is competitive with other materials” in thermoforming applications. The former executive added that thermoformed PET in cups, blister packs and similar uses could account for as much as 10 percent of regional PET sales next year.
Every time the North American PS market seems to be heading in the right direction, it gets pushed back a step or two — or three.
Heading into 2012, PS makers were optimistic about making inroads vs. PP based on price, taking back some applications that PS had lost to PP in the first place. But through August, regional PS prices had climbed 16 percent because of higher feedstock costs, while regional PP prices had fallen about 5 percent, preventing PS from making any headway.
On top of that, a slow economic recovery contributed to demand falling almost 5 percent in the first half of the year. Among major PS end markets, food packaging/ food service held up relatively well in the first half, with demand falling less than 2 percent.
In spite of these challenges, PS makers such as Americas Styrenics LLC of The Woodlands, Texas, “remain optimistic about the future for polystyrene in North America,” according to commercial Vice President Scot Mitchell.
“Although demand in 2012 has not been as strong as we had anticipated when this year began, I think that’s primarily due to a weaker economy than was anticipated, as opposed to any real loss of share to competing products,” Mitchell said via email.
“As the economy improves we expect to see demand for PS into both durable and non-durable applications begin to grow again,” he added. “PS remains the easiest large-volume plastic to process into packaging.”
Americas Styrenics has high hopes for PolyRenew, a recycled-content PS grade that the firm launched earlier this year. “Based on continued interest from customers … we believe that we will see [PolyRenew’s] volume grow in the years to come as consumers continue to push for sustainable solutions using post-consumer products.”
But market watchers agree that PS still has its work cut out for it.
PS “is in an area now where it has a problem competing with other resin types,” said RTi PS market analyst Stacy Shelly. “PS prices are very volatile. Even polypropylene is less volatile now, so packaging companies aren’t switching from PP to PS.
“It’s ethylene and propylene [feedstocks] vs. benzene and butadiene. We’re seeing more manufacturers choose olefins vs. styrenics,” Shelly said.
Mathelin Bay’s Karig said the current PS story in North America is “a variation on the polyethylene story.”
“A few years ago, it was about shutting down excess [PS] capacity,” he said. “In the last couple of years, [PS] has been a smaller, leaner-type industry intent on improving margins, even if that means lower sales and operating rates.”
One development that could benefit PS in 2013, according to Shelly at RTi, is the introduction later this year of a listed contract for benzene being offered on the New York Mercantile Exchange. That contract “will give PS buyers the ability to hedge, which might give them the ability to manage price volatility and stick with PS as a material,” Shelly said.
Looking to 2013, market watchers said that PS industry players would be satisfied if sales were flat vs. 2013. “If I’m a PS maker,” Karig said, “I’m looking for maximum return without worrying about the overall sales figure.”
“Profitability is the key to long-term viability,” said Mitchell at Americas Styrenics. “And the styrenics chain has been squeezed for quite some time.”
Polycarbonate is one of several North American resin markets that’s benefiting from the dramatic turnaround of the North American auto industry.
“Auto has been one of the main drivers,” said Sam Stewart, sales and distribution vice president at Bayer MaterialScience LLC in Pittsburgh. “Car builds should be close to 15 million this year, and there’s more growth for us here. We’re bullish in 2013.”
Auto-related PC growth “has been a combination of more content and part integration and design,” he added. “Smaller cars tend to get better mileage and have more plastic parts.”
In an email, Sabic Innovative Plastics executive Greg Adams said that automotive “will continue to grow as polycarbonate continues to be the material of choice for forward lighting, and creative designers are looking to use the material in larger portions in the front of the auto to help create brand-differentiating looks for their vehicles.”
Adams — who serves as Sabic IP’s vice president of automotive and polycarbonate strategy — added that North American PC is seeing strong growth in the consumer electronics and medical markets in North America. “PC blends continue to be selected for electronic housings,” he said, “as well as transportation-related applications where customers are looking for materials to withstand highway environmental conditions and that deliver light weight, high strength, excellent heat stability and impact performance.”
Electronics in the form of LED incandescent lights also are supplying PC growth, according to Stewart at Bayer. For Sabic IP, Adams said that PC “is an excellent candidate” for many LED components and applications due to the material’s ability to provide optical clarity, heat resistance and flame retardancy. He also cited PC’s long-term color stability and retention of light-transmission performance under the influences of heat and light.
Adams singled out highway sound barriers as “another potential application for polycarbonate, currently seen in regions outside of North America.” Using PC sheet on highway sound barriers allows motorists to have greater visibility while also providing road-noise reduction for neighborhoods, he said, adding that PC sheet also is easy to install and is a lightweight material.
PC “has always found its way into a lot of new applications” in information technology and com- munications, Stewart said. BMS also is seeing positive growth in applications used in home construction as that market recovers.
On the PC feedstock side, Stewart said that availability “isn’t much of an issue,” but added that feeds such as phenol, acetone and benzene “could still be pretty tight.” North American PC operating rates could be in the high 80s or low 90s in 2013, Stewart said
Another mini-trend affecting North American PC in 2012 and 2013 is the return of some business to PC from copolyester. Some processors had made the switch to copolyester because of alleged health risks about PC feedstock bisphenol A, but Stewart said some of those applications have returned to PC because of concerns about clarity, bottle life cycles, reuse and crazing.
Overall, Stewart said North American PC should post sales growth of 4-5 percent this year and in 2013 as well. “Our price points are very competitive,” he said. “And there aren’t a lot of resins that can invade our engineering space.”
Adams cited an IHS Chemical forecast of 2.5 percent growth for North American PC in 2012 and of more than 3 percent for 2013. “Consistent recovery of consumer demand over the past several years, impacting automotive builds and home buying, will help to support continued growth in 2013,” he said.
Of all major commodity and engineering resins, nylon has gained the most from North America’s big automotive comeback, since at least 40 percent of regional nylon resin sales go into that market.
North American nylon resin demand is set to reach mid-to-high single digits this year and in 2013 as well, market watchers said.
“There continue to be new applications for lots of engineering polymers,” said Dave Donofrio, global business director at nylon leader DuPont Co. in Wilmington, Del. “Nylon can help automotive with key issues like lightweighting. Some projects that have been considered in the past have been reconsidered.”
“We’re seeing continued penetration [of nylon] onto newer auto applications like front-end modules, cylinder head covers, oil pans and seating,” added Joe Venner, industrial business director at BASF Corp. “[Automakers] continue to reduce weight of vehicles and replace metal with plastic to achieve that goal.”
Donofrio singled out transmission applications as an auto area where nylon isn’t prevalent now, but is growing. “Automotive is the best fit for nylon in the application development pipeline,” he said. “That’s a combination of design and of new materials coming out that meet needs there. Designers gained a comfort level with nylon through the powertrain system, and now they’re comfortable with how to design with it.”
Although Donofrio said that non-automotive nylon sales have been “moderate,” Venner said some non-auto areas show promise for 2013. An improved housing market has created opportunities for nylon in power tools and lawn and garden products. Sales into the appliance market “are still slow,” he said.
On the new nylon product front, Florham Park, N.J.-based BASF recently commercialized new high-flexibility grades for hose applications and high-modulus grades for structural parts.