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Export sales for PVC expected to grow, PET struggles with oversupply

By: Frank Esposito

April 15, 2014

HOUSTON — PVC is looking up, PET is looking for answers.

That’s a brief summary of global market conditions described by analysts Henry Warren and Chase Willett at the IHS World Petrochemical Conference, held March 26-27 in Houston.

PVC should be boosted in 2014 by growth of almost 5 percent in global construction spending, Warren said. Construction spending growth in North America will be even higher at almost 7 percent, he added. The North American construction market peaked in 2005 before collapsing amid the recession. Now it’s on its way back up, driven by the housing market.

On a global basis, slowing capacity growth will allow global PVC operating rates to improve from 65 percent last year to 72 to 73 percent by 2018. In 2013, China accounted for 38 percent of global PVC demand, with North America and Western Europe each having an 11 percent share.

North America’s PVC demand growth also will lead the region’s PVC makers to invest in new capacity, Warren said. To date, producers Mexichem SAB de CV, Westlake Chemical Corp. and Shintech Inc. have announced expansions totaling about 1.3 billion pounds of annual capacity, but Warren said he expects more to be announced, with part of that new capacity being aimed at the export market.

Exports of PVC from North America to South America, the Middle East, the Indian subcontinent and the Baltic countries are expected to grow. North America’s stronger reliance on selling into the export market has been “a big step change” in recent years, according to Warren.

Exports’ share of North American PVC sales went from 10 to 15 percent in 2007-08 to 48 percent in 2011. Demand was down after the recession, and North American suppliers needed to find a home for their material. Exports are expected to make up around 40 percent of North American PVC sales through 2018.

Profits also increased as natural gas-based feeds became more prominent, Warren explained. U.S. PVC cash margins now are around $210 per ton, as compared to $64 in Northeast Asia and $48 in Western Europe.

“The North American cost advantage is expected to remain strong,” Warren said.

The situation in the global PET market, however, continues to defy logic.

“PET continues to struggle with the oversupply it’s had for a decade,” Willett said. “There’s almost no growth in North America, but we’re building [PET] plants like they’re going out of style.

“We don’t know how to stop building,” he added. “Asia has never seen a parking lot that couldn’t use a PET plant.”

As a result, global PET operating rates are below 75 percent. But at the same time, Producers have been reluctant to close older or smaller plants, both for PET and purified terephthalic acid (PTA) feedstock.

A big part of the PET demand picture in North America, according to Willett, has been consumer preference shifting away from carbonated soft drinks and more toward energy drinks — which often are sold in metal cans — and bottled water, which is sold in bottles that use less PET per bottle than CSD bottles do, and which themselves have become thinner in recent years.

North American consumption of diet carbonated soft drinks alone fell 7 percent last year, with the overall sector slipping 3 percent. That category is expected to decline by an average of 2 percent for the next couple of years, according to Willett. Bottled water consumption has provided a bit of a bright spot, growing more than 5 percent in 2013.

Major new applications for PET also have been hard to come by, Willett said, since food applications such as pickle jars have lower turnover than the beverage market, where a consumer might drink several bottles of water per day. Transitioning beer and milk into PET bottles “is the next opportunity — but they’ve been the next opportunity for a long time,” he added.

But this market saturation hasn’t stopped North American PET makers from announcing about 3.5 billion pounds of planned expansions for the next few years, including major projects from M&G Group and Indorama Polymers. That does not even include a proposed plant with almost 1 billion pounds of annual capacity in Charleston, S.C. The company involved with that project has not been identified by local developers.

Willett pointed out that these sizable expansions are taking place in a market that has annual demand of under 9 billion pounds, leading him to describe North American PET as “chronically oversupplied.”