HOUSTON-Polyethylene prices may be high enough now to contribute to slack demand later this year and to precipitate soft-er prices in 1996. The continued strong economies of the United States, Canada and Europe are promoting increased demand for PE resins. But, said analysts at two recent petrochemical conferences in Houston, current price levels and increased production capacities may combine to quash further price increases, while softening prices next year.
For processors, that means market conditions may have reached a plateau that will continue well into 1996. Those conditions are expected to be marked by adequate amounts of PE resins available at current prices, with some deals available for excess amounts of resins - especially linear low density PE resins.
``The polyethylene price has risen from so far down that the current price may not be very extreme,'' said Bob Dennett, an industry analyst with CMAI, a Houston-based consulting group.
He spoke at CMAI's 1995 World Petrochemical Conference March 23 in Houston.
``The impact of higher prices is hard to measure because there seems to be a lag in the market reaction. High prices today may dampen demand six to 12 months later,'' said Dennett, who joined CMAI in 1994 after spending 28 years with Phillips Chemical Co.
He compared current price and demand with prices and demand back to 1981, noting: ``If the pattern follows, 1996 will have negative growth in demand.''
Despite that overall scenario for PE, Dennett and Donald L. Schober, business director for Unipol polymers for Union Carbide Chemicals and Plastics Co. Inc., said they expect demand for LLDPE to grow, largely at the expense of low density PE.
Schober noted that in 1994, for the first time since Union Carbide introduced LLDPE in late 1977, sales of LLDPE surpassed sales of LDPE for film applications. Schober spoke March 22 at the Dewitt Petrochemical Conference in Houston.
Dennett said technologies such as single-site, metallocene catalysts and condensing and super-condensing mode developments announced recently by London-based BP Chemicals Inc. and Houston's Exxon Chemical Co. will promote the market position for LLDPE further.
Dennett said he does not believe the worldwide PE industry is on the verge of what he called a ``building frenzy,'' despite increased demand. This is primarily because new technologies are allowing PE producers to add significant new capacity at existing facilities. Also, he noted that current profit margins are not adequate to support reinvestment in new facilities.
Dennett said he expects worldwide demand for high density PE and LLDPE to remain strong through 2000, and for PE supplies to become tight in 1998 and 1999. Global demand for HDPE was more than 33 billion pounds in 1994, and Dennett said CMAI is projecting 5.5 percent growth annually through 2000. He expects HDPE prices to decline slightly in 1996, but to increase in 1997, 1998, and 1999.
For LLDPE, Dennett said global demand hit more than 14 billion pounds in 1994. He expects demand for LLDPE to grow by 9.2 percent annually through 2000, with double-digit growth in South America, Africa and the Asia-Pacific regions.
Meanwhile, he said he also expects prices for LLDPE to decline in 1996, but then to build during the next three years.
Finally, Dennett said world demand for LDPE was more than 29 billion pounds in 1994, and is expected to grow at an annual rate of 2.2 percent through 2005. He said he extended his prediction by five years for LDPE to emphasize his belief that LLDPE will replace LDPE in many applications in the next 10 years.
Dennett said he expects a steeper decline in prices for LDPE - compared with the decline in prices for LLDPE - in 1996, and for LDPE prices to remain soft as manufacturers strive to compete for market share with LLDPE.