HOUSTON - If demand does not increase significantly, there will be excess production capacity for polyethylene at least for this and the next three years. However, even with expected overcapacity, there may be shortages of specific types of PE - especially low density.
Production capacity utilization rates for PE are forecast to range between 82 and 87 percent during this and the next three years, according to Don Brady, worldwide manager of PE products for Phillips Chemical Co. of Bartlesville, Okla.
Brady spoke March 20 at the Dewitt Petrochemical Review in Houston.
``The large addition of swing capacity [for PE] makes analysis of capacity utilization rates of linear low density PE and high density PE difficult,'' he said.
``Worldwide capacity utilization is forecast to be in the low 80 percent range, but will more likely be considerably higher due to conservative growth forecasts,'' Brady said.
The ``conservative'' estimate says PE resins will grow at a rate of 2.3 percent, Brady said. However, he added, Phillips believes demand will grow much faster than that.
``Assuming a more realistic growth rate of 5 percent or 7 percent provides much-improved capacity utilization, and will create a tight supply/demand situation near the end of the decade,'' Brady said.
Brady did not address PE pricing. Typically, though, excess ca-pacity translates into low prices. Even with the conservative de-mand growth projections, Brady said capacity utilization rates for LDPE will be high - above 90 percent - because no new capacity is being built. Also, demand for LDPE will be tempered as LLDPE takes more market share. Mean-while, HDPE will continue to dominate in North America, with a 45 percent market share, Brady said.
Gary Miertschin, vice president of commercial operations for Sol-vay Polymers Inc. of Houston, said he is bullish on HDPE's outlook, and believes markets will be very good in the next five years.
North America, with the largest PE production capacity in the world, will continue to dominate in HDPE and LLDPE, but new swing capacity being built in Asia will sap export markets for resin made in North America, he said. Both Brady and Miertschin acknowledged that production and costs for PE chiefly depend on availability and pricing of ethylene. Miertschin spoke March 21 in Houston at the 1996 World Petrochemical Conference, sponsored by CMAI. They said they expect ethylene supplies to be sufficient over the next five years.
``If the growth in demand for ethylene is as expected, one-and-a-half times the growth of the [U.S.] gross domestic product, and if no unexpected outages occur, there should be a stable supply of ethylene, and a stable supply of polyethylene, through the year 2001,'' Brady said.
Miertschin talked about markets for HDPE products, noting those markets' cyclical nature.
While 1994 marked a year that ethylene was in tight supply, demand for PE leapt both as a result of natural growth and as a result of frantic prebuying as processors scrambled to buy resins before prices increased.
Then, 1995 was marked by a return to normal marketing conditions, and prices fell as inventory levels were adjusted, Miertschin said. However, Miertschin provided a model of a complex business cycle for HDPE that he used to draw several theories for the future. His model used a variety of market factors to chart and infer how changes in the supply, demand and prices for HDPE resins are related to each other.
``Based on Solvay's estimates regarding nameplate capacities in both the United States and Can-ada, it appears that for 1996 there will be ample HDPE nameplate capacity,'' he said. ``Sales should be about 92 percent of U.S. nameplate capacity, assuming a growth rate of 5.5 percent over 1995, [and] barring any other factors. However, ethylene production is another matter entirely.''
CMAI - a consulting firm based in Houston - projects ethylene capacity utilization rates of 93-98 percent, while demand for ethylene will grow 2.8 percent.
``However, already there are signs that this may be very conservative in light of the heavy demand for PE from both the export and domestic markets during the first quarter of 1996,'' Miertschin said. "If this increased demand absorbs excess HDPE in-ventories and the proposed price increases hold, then, according to the model, demand will be stimulated as downstream HDPE users begin replenishing what are believed to be very low inventories to beat the price [increases].
``This activity will stimulate more demand on PE and, hence, on ethylene and will encourage prices to rise further, stimulating more demand,'' Miertschin said.
Simply put, that upward spiral would continue until the diminished availability of ethylene and price increases combine to limit competition while encouraging expansions of capacities.
``Even if this scenario does not play out immediately, it is quite possible that it will sometime between now and 1998. By 1998, there will be ample ethylene for several years,'' Miertschin said.
By that time, he added, unless further HDPE production is built, there may be shortages of polymer production capacities.
While Miertschin's outlook differed from Brady's, both agreed that the cycles for PE production and prices will not level out soon.
Brady compared PE markets to a wildly running roller coaster, and said he does not believe that new technologies nor any other factors will slow that ride in the foreseeable future.