MIDLAND, MICH. — The world polyethylene market will need 20 billion pounds of additional capacity — the equivalent of 50 PE production lines — to maintain current growth through 2000, according to officials at Dow Chemical Co.
In a PE outlook statement released Oct. 20, the Midland-based PE giant cites statistics compiled by Parpinelli Tecnon, an Italian research firm. Those numbers show a compounded annual growth rate of 6 percent in PE — 11.7 percent in linear low density PE, 7.4 percent in high density PE and 1.8 percent in LDPE.
Dow points out the PE growth rate is twice that of the global gross domestic product.
``Any time you're 1, 2 or 3 percent off the GDP, that's a substantial growth rate,'' Paul Moyer, senior product manager for Dow's polyolefins & elastomers group, said in an Oct. 27 interview in Midland. ``I don't think the industry appreciates what that truly means.''
Concerns about overcapacity in ethylene and PE — and the chance that overcapacity could lead to a trough period in commodity plastics — don't take into account this burgeoning demand, according to Dow officials.
``The market's absorption rate is grossly underestimated,'' Moyer said. ``You see in print all of this capacity coming on in China or North America or wherever, but unless it's adding up to 50 trains, it just doesn't add up.''
As an example of this absorption power, Moyer recalled the opening of Dow's newest ethylene cracker in Fort Saskatchewan, Alberta, in 1994.
``We brought this huge cracker on that we thought was going to have a big impact,'' Moyer said. ``But we sold out both trains from the day it opened. The market just absorbed it like nothing happened.''
Moyer also was not overly concerned about recent financial turmoil in Southeast Asia. Dow posted sales of $2.6 billion, 10 percent of the company's overall total, in the Asia-Pacific region in the 1995-96 fiscal year and plans to have a major PE plant up and running through a joint venture with Siam Cement in Map-Ta-Phut, Thailand, by 1999.
``The investments will still take place there because the return on investment is still worthwhile,'' Moyer said. ``Thailand's not immune in the short term, but the current situation doesn't change the fact that, fundamentally, their per-capita use is very low.''
The largest PE capacity growth rates are being found in the Asia-Pacific and Africa-Middle East regions and Latin America. Although these areas show the greatest increases, North America continues to lead the pack in per-capita consumption worldwide, according to Len Azzaro, Dow's North American PE commercial director.
Dow has met requirements — such as maintaining a competitive cost position and delivering value-added next-generation technology — needed from a successful long-term supplier, said Roger Schwartz, Dow's global business manager for solution process PE.
A pair of industry analysts had slightly different views of Dow's PE projection.
Gary Adams, an analyst with Houston's CMAI Inc. consulting firm, said the projections cited by Dow were on track with those compiled by his company.
``The numbers show a fairly attractive growth rate but we're still looking at a fairly severe oversupply globally,'' Adams said.
That overcapacity, as well as slowing in global economies, will lead to a lower growth rate in the PE industry in 1998-99, Adams said.
CMAI's anticipated average annual growth rate for LLDPE from 1996-2002 is 9.8 percent, a number that's only 1.9 percent less than the 11.7 percent 1997-2000 prediction Dow cites.
The extended outlook for LLDPE, which stretches to 2006, shows a 9.1 percent average annual growth rate, according to CMAI. That number is down from the 12.9 percent growth CMAI shows for PE from 1992-96, but Adams said that is a result of a larger overall market in which declining percentages can produce the same results.
William Kuhlke, president of Houston's Kuhlke & Associates, said he was concerned with the 6 percent PE growth rate Dow cites, claiming the actual number will be closer to 4 percent, primarily because of overexpansion in Southeast Asia.
Kuhlke had predicted overexpansion in that region would negatively affect the industry even before the recent market crash, and he's sticking to his guns on that topic.
``Thailand has 600,000 tons of polyethylene scheduled to come on line in 1999 and 2000 and that's just too much growth for that country,'' Kuhlke said in an Oct. 31 telephone interview from Houston. ``Thailand's economic growth rate is already down from 9-10 percent to 3-4 percent and China's has dropped from 10-12 percent to about 6 percent.''
Major worldwide PE players —such as Dow, Exxon Chemical, Phillips, Borealis and Novacor —could use Dow's projections, but smaller players with weaker research and development bases should exercise caution, according to Kuhlke.
``Dow can operate on a lower volume and weather the storm, but it's questionable if other companies can do the same,'' Kuhlke said.