Plastics processors may hope they have seen the peak for resin prices, but resin manufacturing actually is in the middle of its business cycle, with prices to remain high and supplies tight until suppliers commit to major new production capacity. This sellers' market - which began in the fourth quarter of 1993 - may continue until 1996 or 1997, with strong demand keeping pressure on prices and giving suppliers a healthy profit.
Resin manufacturing is cyclical. Suppliers invest in huge new production facilities, then wait for demand to catch up to the available supply. When it does, they typically incorporate modest capacity additions by debottlenecking existing facilities before committing to the next major expansion.
Any unusual or unlooked-for events - such as accidents in polymer or monomer production plants, a disruption in the supply of critical feedstocks, or a brush-fire war in one of the oil-producing areas of the world - can put increased pressure on prices for resins during this period. Similarly, an unlooked-for downturn in the economy could cause a decline in demand and could result in lower prices.
At some point, resin makers will determine that their debottlenecking projects will not be sufficient to meet growing demand, or no longer will becost-effective. Then they will decide that new production capacity is required.
The new capacity will require huge capital investments and take two to three years to build. When it is built, the cycle will start over again.
Plastics processors can watch for signs of such a renewal of the business cycle by keeping an eye on announcements from resin makers for major capacity expansions.
Here is a rundown of the primary resins tracked by Plastics News, and an outlook for their availability for 1995.
The PE business ``dug a hole for itself'' between 1989 and 1994 with huge price cuts, said TonyCarbone, group vice president for the Dow Plastics unit of Dow Chemical Co. of Midland, Mich.
Average prices dropped from just above 50 cents per pound in 1989 to below 25 cents per pound in 1991, and seesawed in ranges of 30-35 cents per pound until early 1994.
``We just got back to the 1990 price levels in the third quarter 1994,'' Carbone said at his company's annual press briefing, held Dec. 8 in New York.
``The industry has just filled in the hole it dug for itself but, clearly, we are not at reinvestment levels yet today,'' he added, referring to a pricing level at which building new PE production capacity would be merited.
Carbone expects prices to increase in the first half of 1995, and flatten out for the second half of the year.
However, he noted, there may be a slight, temporary dip in prices in late January or early February, reflecting a traditional slowdown in business, coupled with the effects of prebuy-ing by processors in the last half of 1994. Buyers, nervous about reduced resin supply because of several plant outages and flooding in the Houston area, topped off their inventory levels.
Ronald H. Yocum, president and chief executive officer of Quantum Chemical Co. of Cincinnati, noted in a Dec. 5 speech that the price increases Quantum - the largest producer ofPE in North America - Dow and other producers saw in 1994 were not expected a year ago. Yocum spoke at the annual Chemical Industry Conference in New York.
``The key to understanding the current supply/demand situation in PE is in the ethylene market. Ethylene in the United States is a 45 billion-pound industry that supports 68 billion pounds of derivative products,'' Yocum said.
While other feedstocks are used to replace ethylene in that 68 billion-pound derivatives market, ethylene is the preferred and lowest-cost raw material.
Producers of PE and other products derived from ethylene, which include polystyrene, ABS, PVC and PET and, further down the chemical stream, nylon and polyurethane, all are operating as if their production capacity were in a sold-out state because the production of ethylene has been sold out, Yocum said.
``The ethylene industry has been operating at a 100 percent effective capacity for much of 1994, and at an overall, average operating rate of 99 percent'' for that year, Yocum said.
``Although some relief will occur as outages are corrected and plants are brought back on line, the industry will see a heavy plant turnaround schedule in 1995-1996 to recover from hard operation in 1994,'' he said. ``Moreover, extra capacity may be required in early 1995 to rebuild ethylene inventories.''
Dow, Exxon Chemical Co. of Houston, Shell Chemical Co. of Houston and Quantum are planning new ethylene capacity additions during 1995-1996 and beyond, he said.
``Assuming all new units operated as advertised, operating rates may ease back to 96 percent of available capacity in 1995. But, with no new grass-roots capacity additions on the horizon, and four years required to [obtain a] permit, design and build a plant, ethylene operating rates are expected to climb steadily from 1996 through the end of the decade,'' Yocum said.
Carbone agreed with Yocum's assessment, and added that he expects debottlenecking in both ethylene and PE to continue for several years. Debottlenecking will help his and other firms to maintain profits that will permit reinvestment in production capacity in the future, he said.
Demand for PE resins grew by 7 percent in 1994, and is expected to grow by 5-6 percent through 1995.
PP producers say they expect the production of propylene monomer to be sold out in the first six months of 1995, as the production of ethylene monomer was sold out in the last six months of 1994.
Tight monomer availability and continued strong demand are expected to put pressures for price increases on PP resinmakers. A price increase for PP - its sixth since March 1994 -was to go into effect Jan. 1.
Production of propylene grew 13 percent from 1989-1993, while production of PP grew 15 percent in the same period.
In 1994, demand for PP grew 9 percent, while production of propylene grew 7 percent.
Don Drummond, vice president for sales and business manager for PP at Himont Inc. of Wilmington, Del., pointed out that several new propylene cracking units are slated to start production near the end of the first quarter.
The new capacity will ease - but not eliminate - the crunch in propylene markets, and it will not have any effect on PP markets, Drummond said in a Dec. 20 telephone interview.
``Historically, PP sales skyrocket in the first quarter,'' he said, noting that additions to monomer production will not ease tightness in polymer production.
He added: ``Announced increases [in polymer production capacity] will barely keep pace with market demands for the next two years.''
As in PE markets, Drummond and other PP producers said they expect to see a seasonal decline in January sales, but do not expect any softening of prices in PP.
Drummond and another PP producer, who spoke anonymously, said their 1995 production already was sold out, so they were not seeking newbusiness, and they are advising customers that new projects may have to be delayed because resins will not be available.
``Unless the fiber market drops precipitously, 1995 will be one of the tightest years for PET resins that we have ever seen,'' said Bill Evans, manager of market research for PET resins for Eastman Chemical Co. of Kingsport, Tenn.
Shortages in cotton for textiles, especially in the Far East, and the success of PET as a packaging material have pushed demand.
While significant production expansions have been announced by Shell Chemical Co., ICI Americas Inc. and Eastman, growth in demand is expected to remain strong and to outstrip those expansions until well into 1996, Evans and other executives of PET-producing firms said.
The expansions - including doubling of capacity planned at new plants Eastman announced for Spain and Mexico - will increase worldwide PET capacity by 20-25 percent.
In the meantime, PET manufacturers are using all of their capacity, and selling every pound they produce, executives said.
``There are no inventories. Production is stretched to the limit. Feedstocks are all extremely tight. Any disruption in supply of feedstocks or polymer will be felt immediately,'' Evans said in a telephone interview Dec. 19.
Strong demand in 1994 helped PS manufacturers impose four price increases.
While demand is expected to stay strong in 1995, price increase pressures won't be as great as for PE and PP, suppliers said.
No PS manufacturer wouldspeak on the record.
Several PS makers said they are projecting 4-5 percent growth in demand in 1995, with inventory staying at historically low levels.
Prebuying put processors' in-ventory levels at an estimated 20-day supply, and a traditional end-of-the-year lull in business is expected to give suppliers a chance to build their inventories.
However, suppliers said the high prices and low availability of PP and PET put PS in a good competitive position that willfeed demand.
``PS is tight, but there are not the same conditions [as there are in PP and PET] that would cause a pricing push at this time,'' an executive from one resin supplier said.
But, he added that any disruption or change in the price of styrene monomer immediately would change his outlook for PS.
In a related area, ABS producers said they expect 1995 to be a good year as they recover from the disastrous May explosion at Shell Chemical Co.'s facility in Belpre, Ohio. That explosion wiped out much of the U.S. production of butadiene rubbers, and sent the industry into shock during a growth year.
Producers of styrene acrylonitrile resins also said they expect 1995 to be a good year, because of increased demand from sever-al new projects and applications.
As with PS, vinyl makers do not see market pressures for further PVC price increases.
However, PVC makers also noted that their assessments could change if there are any disruptions in the supply of vinyl chloride monomer. Also, PVCmakers noted that any further increases in the price of ethylene would affect their prices significantly .
``The pinch point is vinyl chloride monomer,'' said John Russ, vice president for sales, marketing, research and customer development for Borden Chemicals and Plastics L.P., based in Geismar, La.
``There will be no problem with PVC if there is no problem with vinyl chloride monomer, if there are no accidents and no outages. Vinyl chloride monomer is very tight and will remain so,'' he said.
Russ and other industry executives expect PVC demand to grow 51/2-6 percent worldwide in 1995, fueled primarily by an expected 7 percent increase in demand in the United States.
However, they said U.S. demand could be lower if construc-tion markets go through a decline because of higher interest rates.
``1995 will be a very good year for PVC,'' Russ said in a telephone interview Dec. 22.
A series of projects that came to fruition in 1994 boosted demand for acrylic resins in 1994, and are expected to continue to spark good demand in 1995, according to Horace McCoy, sales manager for ICI Acrylics in Memphis, Tenn.
ICI became the premier maker of acrylic resins in late November, when the Federal Trade Commission lifted a ``hold separate'' order on its acquisition of the Lucite acrylic resins business formerly owned by DuPont Co., headquartered in Wilmington, Del.
With prices and production up, acrylic resin makers also are expecting 1995 to be a healthy year.
``We have been sold out for the last four months, and we can now pick and choose our customers,'' McCoy said.
The primary concern in the market for acrylic - as with other resins - is the availability of feedstocks.
But, in acrylic, competition for feedstocks is not other resins, but gasoline. The new oxygen-enhanced gasolines that are mandated in some metropolitan areas are placing new demands on acetone feedstocks that previously were in adequate supply for acrylic, McCoy said.
While a price increase that was announced in summer still is moving through the market, nylon resin makers are eyeing their feedstock supplies warily.
Nylon resins are tight, but they have not been in as short supply as other resins, suppliers said.
Several debottlenecking programs for adipic acids and lactams - the primary feedstocks for nylon - are under way, and are expected to ease tightness in late 1995 or early 1996. In addition, major polymer expansions are coming into production this year. DuPont Co. is bringing production on line by June at its new $100 million Singapore facility. Production at that facility is expected to be consumed by markets in the Far East.
Meanwhile, the Engineering Plastics Group of AlliedSignal Inc. of Morristown, N.J., announced Dec. 13 it will double polymer production at its Chesterfield, Va., plant by 1997. AlliedSignal claims to be the largest North American nylon 6 maker. AlliedSignal began expanding its polymer production in early 1994, and said it will increase capacity 60 percent by 1995's third quarter. The final phase of the expansion is to be completed in early 1997, the firm said. AlliedSignal would not release its production capacity.
Polycarbonate producers, who already say they are sold out for 1995, are predicting demand to grow by 8-12 percent in 1995,and supplies to remain tight through 1996.
While several debottlenecking projects are under way, they are not expected to add sufficient capacity to the market to meet the increase in demand.
``PC has not been this tight since the early 1970s. We have advised our customers that it will be difficult to supply new programs,'' Mark Witman, vice president for the PC business group for Miles Inc., said in a Dec. 19 telephone interview.
Booming sales of cars, portable computers and appliances-all of which are expected to stay strong through 1995-are fueling PC demand, executives said.