While 1994 was a year for significant demand and feverish price increases, demand for thermoplastic resins softened in 1995, as buyers trimmed their inventories. Now, the North American inventory correction that put demand back at normal growth patterns while tempering prices is over.
Industry executives and analysts are predicting respectable growth for commodity thermoplastics for the coming year and, if that prediction holds true, firming prices.
Supplier company executives and analysts caught a slight case of overoptimism in late 1994, a condition cured by the inventory correction and the return to normal demand in mid-1995. Then they watched as their predictions - and hopes - for continued high pricing for plastic resins melted away.
With their optimism stripped away, producers of commodity polymers now say they expect 5-6 percent growth in demand for 1996, and add hopefully that by the third or fourth quarter prices may again increase as polymer production capacities strain to meet demand.
As a sign of what may come, polyethylene producers announced in December a significant price increase for January, and analystssaid price increases for other commodity thermoplastics may be in the offing later in the first quarter.
Separately, demand and prices for engineering thermoplastics did not slide significantly in 1995, and executives and analysts are predicting growth will be respectable while prices remain firm.
Resin prices shot upwards in 1994, as a result of shortages of monomers and feedstocks. Monomer shortages were so severe that polymer producers made all the resin they could, yet polymers appeared to be sold out.
The apparent sold-out condition was bolstered by demand that leapt a robust 10 percent for the year. Some of the growth in 1994 led to oversupplies of inventories in 1995.
By the end of the first quarter of 1995, buyers generally saw resins become more available. Demand for commodity thermoplastic resins relaxed during the second quarter as companies drew down on inventories. In June, prices began to drop.
Resin demand for 1995 grew at a rate of about 2.5 percent. Industry analysts note that, combined, 1994 and 1995 produced a slightly better-than-normal growth rate of about 6.25 percent.
That rate is about what is expected for the sales of all thermoplastic resins for 1996. Here is a resin-by-resin outlook for the year:
Len Azzaro, Dow Plastics' PE commercial director for North America, said at Dow's year-end press briefing Dec. 8 that he viewed PE sales for 1995 as being a 101/2-month year.
The inventory correction consumed demand for the other month and a half.
Azzaro said, ``1996 will be a more normal year.''
His comments were seconded by Tony Carbone, group vice president for Dow Plastics,based in Midland, Mich.
In his outlook for the year, Carbone said Dow is expecting a very good year, despite some pricing pressures that may act to trim producers' margins.
However, Carbone said Dowexpects sales of PE to soften slightly in the first half of the year, but to regain strength and to see firmer pricing in the second half of 1996, in preparation for a record year in 1997.
Andrew J. Smith, chief executive officer of Rexene Corp. of Dallas, agreed in a separate interview Dec. 19 that the first half of 1996 may be light for PE demand, but he is optimistic about the year.
``There are good dynamics out there, and it will be a good year. There is even the potential for such good growth this year that we may see some shortages of specific grades of resins,'' Smith said.
In consideration of the light expectations for the first half of the year, Dow executivesagreed that a 5 cent-per-pound price increase announced for Jan. 1 may be difficult to maintain in the market. But they believe the increase is necessary to stanch the company's declining margins.
Other PE producers have announced similar price increases, but dated their announcements for Jan. 15 or later.
Such pricing announcements in previous years were seen as disorganization within the market. However, an analyst pointed out that PE producers, still smarting from a Justice Department investigation into pricing practices, might continue to announce pricing changes on different dates as a demonstration that their announcements are not related.
However, placing such staggered pricing announcements into effect may prove to be difficult with continued softness in the market for PE.
During 1995, several PE producers announced new technological innovations, and several, including Dow, Exxon Chemical Co., Phillips 66 Co. and Rexene, announced debottlenecking programs that would increase their production capacities incrementally.
However, no supplier announced projects for a new production facility, although Union Carbide Corp., Lyondell Petrochemical Co. and Quantum Chemical Co. began an engineering study to build a PE production facility by 1998.
Meanwhile, Union Carbide, Formosa Plastics and Montell Polyolefins all were seen to be having difficulty bringing into production new and expanded PE facilities whose output the market was counting upon to ease tightness.
Separately, Chevron Corp. was starting up a new linear low density plant at the end of December, and was expecting to be selling product from that line this month.
With the Chevron facility and expectations that Union Carbide, Formosa and Montell will iron out their production snafus, industry executives and analysts said they expect demand for PE to increase by 6-6.4 percent this year while production capacities will increase by half that amount.
Those conditions are expected to contribute to a tight market for PE by the third or fourth quarter of this year, with a possibility that there will be shortages of specific PE resins.
The shortages may arise, executives said, because demand rates for high, low and linear low density PE are expected to grow differently.
Demand for HDPE is expected to grow at a rate of 5-51/2 percent; demand for LDPE is expected to grow at a rate of 4 percent; and demand for LLDPE is expected to grow 10 percent.
Going into 1995, producers said their order books were full, and that projects would be delayed until new capacity came into production.
Demand for polypropylene outstripped supplies by 2 percent in 1994, and producers were optimistic that growth would continue through 1995.
However, demand for PP wavered in the second half of the year, ending the optimistic outlook.
While there were minor changes in the North American market - Union Carbide completed the expected purchase of a facility from Shell Chemical Co. and Fina Oil & Chemical Co. put new capacity into production - the markets for PP saw no great changes in 1995, and are expecting few in 1996.
On the horizon, Dow Chemical looms as a major player. It announced in December that it intends to be among the top three producers of PP in the world within 10 years.
In the meantime, industry executives who spoke only on condition they not be named, said they expect competition to remain very strong in PP through 1996 for two reasons.
First, the drop in demand and the accompanying decline in prices moved competition up a notch as producers struggle to maintain market positions and margins.
Dow's executives alluded tothis struggling market situation in PP as one of the reasons they are so interested in entering the fray - there is no clear market leader, so the markets are very competitive and in disarray.
Secondly, the anticipation of additional incremental production capacities that are slated to go into production by 1997 are adding to a sense of urgency for producers to gain and maintain market shares.
The executives said they expect demand for PP to grow by 5-6 percent in 1996, a cut below the 7-9 percent growth the industry has seen in the past five years.
While the markets for polystyrene appear to be growing healthily, there is a danger lurking in the future.
Producers have announced significant PS capacity additions for later in 1996 and 1997, and those additions could return the production of PS to a severe oversupply situation.
Industry executives are projecting an 8-9 percent increase in demand for PS for 1996, after 5 percent growth in 1995.
No polystyrene industry executives would speak on the record.
Prices for PS have mirrored pricing for PP and PE, declining since the middle of 1995.
However, several analysts said they see the potential for price increases in the first quarter for PS, based on expectations that prices for styrene monomer will rise. Analysts are expecting monomer and polymer prices to rise after February when a new five-year plan goes into effect in China.
China stopped buying many foreign raw materials in May, in the aftermath of a scandal involving profiteering and tariff payments.
Many analysts believe that scandal has caused a shortage of material in China that could have an impact on North American markets this year.
If China does resume pur-chases of raw materials, prices for PS and PVC could rise significantly.
PVC resins appear to be a step ahead of PS in terms of softening prices and expanding capacities.
As with PS, PVC resin suppliers have their eye on China for 1996.
China's exit from the market in mid-1995 caused a temporary oversupply that had export prices plummeting to 21-22 cents per pound.
Those export prices dragged domestic prices downward, and producers are hoping for a recovery this year.
The loss of the Chinese market also helped to suppress growth for PVC in 1995, but analysts said they expect PVC growth to bounce back 5-6 percent this year, with help from lower prices and a good general economy.
The markets for the primary engineering thermoplastics - nylon, polycarbonate, PET and polybutylene terephthalate and acetal resins - are expected to remain strong through 1996, according to industry executives.
Demand for these resins is ex-pected to grow at a rate of 7-9 percent in 1996, and at a slightly higher rate in 1997.
Peter Mueller, senior vice president for plastics marketing for Bayer Corp. of Pittsburgh, said these resins, especially polycarbonate, have not reached a state of maturity, and will not for some time.
According to Mueller there are so many new applications arising each year that it is dangerous to predict that they will reach a peak in use anytime soon.
Each new application, Mueller said, gives rise to new applications, and new technologies arising from a wide number of sources throughout the world's economies are putting new demands on these materials.
Because of those new de-mands, growth of demand is expected to exceed growth of production capacity for several years, Mueller and other executives said.
As a result, prices will remain firm despite new production capacities.