By: Frank Esposito
April 1, 2013
HOUSTON — PVC's prospects are looking up, while PET, polycarbonate and ABS — well, they're still looking for answers.
North American PVC is benefiting from access to low-cost, natural gas-based feedstocks, market analyst Mike Smith said at the IHS World Petrochemical Conference, March 20-21 in Houston. As a result, U.S. PVC demand growth will average just under 5 percent from 2012-17. Demand growth in China during that time, will be an even 5 percent, with Western Europe at just under 3 percent and the Indian subcontinent at almost 8 percent.
Increases in global construction spending will fuel this growth, helping the global PVC market, which get 42 percent of sales from pipe and fittings and another 18 percent from profiles and tubes. Housing starts in the U.S. are expected to rebound strongly as the country exits the recession of 2008-09. Starts are expected to be above 1 million this year, Smith said, and will hit the 1.6 million mark by 2016.
But exports will remain a big part of the North American PVC market, with the region's export balance expected to increase from 5.5 billion pounds in 2012 to 7.3 billion pounds in 2017.
"North America has become the Middle east of the PVC business, said Smith, who serves as chlor-alkali and PVC director for Houston-based IHS Chemical. "The export market remains critical to future sales strategy."
The region has the world's second-lowest ethylene cost after the Middle East, which also benefits PVC, Smith said, because of the "cheap electricity" needed to make chlorine. And even though this cost advantage "could decline a bit over time," he added that North American PVC profits are expected to be the highest in the world.
This profitability has led Smith and IHS to predict that just over 2 billion pounds of new PVC capacity will be added in North America. Although no such projects have been announced, Smith said that numerous expansions are being studied by the region's PVC makers. "The world needs [more than 2 billion pounds] of new PVC capacity every year just to keep up with demand," he explained.
Global PVC operating rates are expected to recover from near 70 percent in 2012 to almost 80 percent by 2017. The U.S. again will lead the way in that category with operating rates at or above 90 percent.
"The U.S. outlook remains buoyant," Smith said. "PVC will be around for a long time. It's a great polymer."
PET is a pretty good polymer in its own right, but the market is being challenged by a higher cost structure and an abundance of over capacity, according to Chase Willett, senior director of aromatics and fibers at IHS.
PET makers "have built significant capacity in North and South America, and Asia is chronically long on PET," Willett said. "PET plants are easy to build, so there's been a lot of overbuilding. A lot of times, PET is the first step for a country to have a chemical industry. And there's no way enough rationalization will occur."
As a result, he added, global PET operating rates are expected to remain under 80 percent, in spite of strong demand growth in Central and South America and the Caribbean.
Willett described North America as "the most mature region" for PET, having entered the market more than 30 years ago. But the region now expects to see no more than 1.5-2 percent annual PET demand growth. The dominant carbonated soft drink market "is flat or slightly down," he said, while sales of PET into bottled water "are slowing down."
The North American PET market "needs to create new consumers," Willett said.
About 3.5 billion pounds of new PET capacity could be added in North America in the 2014-16 period. That's in a market with about 8.4 billion pounds of total annual demand.
The new capacity "is part of the modernization of industry, but you also have to rationalize other capacity," Willett said. The region "already is [more than 2 billion pounds] long and it could be [more than 4 billion pounds] long. That will hurt operating rates."
In the near-term, Willett said that North American PET prices may have peaked for the year in February, a development that's "good for consumers, but not for producers."
Overcapacity, unfortunately, is familiar to makers of PC and ABS as well, according to Paul Blanchard, engineering plastics director for IHS.
Although both materials, according to Blanchard "have come back strong" after 2008-09, he estimated that current global oversupply in ABS is almost 9 billion pounds — an amount that's roughly four times the size of the North American ABS market.
More huge ABS additions are expected in China, Northeast Asia and the Middle East through 2017. Those locations make sense, since 65 percent of world ABS demand comes from China and Northeast Asia.
Even with greater demand for appliances in areas of Asia that are becoming urbanized — and with appliances accounting for 40 percent of ABS sales — global operating rates are expected to bounce between 60-70 percent through 2017. Operating rate in China could be under 60 percent, Blanchard said.
North America is expected to remain a net importer of ABS, with its import balance increasing from about 305 million pounds in 2012 to more than 430 million pounds in 2017. Western Europe's import balance will increase from less than 300 million pounds to more than 550 million pounds in the same comparison.
China actually will become more self-sufficient in ABS during that period, reducing its import balance from 1.4 billion pounds to about 960 million pounds, Blanchard said.
In PC, global operating rates are expected to be in the high 70s, but the industry still has more capacity than it needs, Blanchard said. Global growth is expected to average 4.5 percent through 2017, with China/Northeast Asia again being the largest consuming market with 53 percent of global PC demand.
In North America, loss of export markets for PC could lead suppliers to reduce production at their plants in the region, Blanchard said. The global PC market was estimated at 7.9 billion pounds during 2012, with 21 percent of that demand coming from electronics. The optical media market — which once dominated PC via compacts discs and DVDs — is now the market's third-largest sector, accounting for 15 percent of global demand.
On a more positive note, Blanchard said that global PC margins may have hit their low point in 2012 and are expected to improve during 2013. New applications — such as glazing on a rear quarter-panel on a Citroen vehicle produced in Europe — also are positive for PC, he added.