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PVC markets recovering, PET growth low

By: Frank Esposito

January 14, 2013

North American PET resin growth is expected to remain low for the near future, while PVC resin growth in the region is trending upward.

“PET is well-overbuilt globally, and the industry continues to build excess capacity,” IHS Chemical PET industry analyst Chase Willett said at the Plastics Processors Conference in Chicago, hosted Oct. 24-25 by his Houston-based firm.

“Most of the interest is in job creation. PET plants are inexpensive to build and the barriers to entry are low,” he said.

Willett estimates the global PET market is oversupplied by almost 20 billion pounds, with about 2 billion pounds of that amount located in North America. On the PET feedstock side, he said production capacity for monoethylene glycol isn’t expected to increase in the near future, which should tighten supplies of that material. “Minor operating issues could send MEG prices up and limit [PET] production,” Willett explained.

In North America, M&G Group’s plans to build a massive PET plant in Corpus Christi, Texas, could affect the market. That plant is scheduled to begin operating in 2015 or 2016, with 2.2 billion pounds of annual PET capacity.

“M&G is No. 3 in [North American] PET right now, and that’s a position they don’t feel comfortable in,” Willett said. “They want to back-integrate [into PET feedstocks] and take advantage of their freight position.”

Slow beverage-industry growth also spells low growth for North American PET. “The beverage industry continues to lightweight bottles, so positive beverage growth doesn’t always mean positive PET growth,” Willett said.

Over in PVC, IHS industry analyst Steve Brien said at the conference that new discoveries of shale gas in North America “have been a game-changer” for PVC in the region by providing a low-price base for ethylene feedstock. As a result, Brien said, U.S.-made PVC has a $200 per-ton cost advantage worldwide.

This status has helped PVC exports from North America, which have more than tripled since 2007. And in 2012 a recovering U.S. economy resulted in positive domestic growth for the first time since 2004. “I think North American PVC hit bottom in 2011 and now will see sustained growth domestically,” Brien said. “Exports also should continue to grow.”

Brien added that he expects North American PVC operating rates to improve from just over 85 percent in 2012 to almost 88 percent in 2013.

But operating rates among makers of PVC pipe and siding — which have been hammered by the drop in construction — are still around 50-60 percent, according to Brien.

Those low rates could be changing as the U.S. housing market recovers. That’s important for PVC, since construction-related uses account for more than half of domestic sales.

“Global construction spending is up in both North America and the world,” Brien said. “Residential construction is picking up in North America because of low interest rates.”

That trend could lift U.S. housing starts back up to the 1.6 million level by 2017, Brien said — well above their current level of 750,000, but still shy of the 2 million mark they hit before the recession.

“The housing market is slowly beginning to rebound,” he said. “There’s a tremendous amount of pent-up demand to replace aging infrastructure such as sewer and water pipe.

“That bodes well for the [PVC] resin side.”