HOUSTON — After a stretch of double-digit growth, polypropylene may become a victim of its own success, as well as that of the U.S. economy.
``Any time there's a halfway decent year in the economy, there's a jump in polypropylene expansion,'' said Bob Ockun, senior vice president for market leader Montell Polyolefins of Wilmington, Del. Ockun spoke at the DeWitt Petrochemical Conference, held April 1-2 in Houston.
``I like to use the analogy of 7-Eleven and McDonald's — every corner has to have one,'' Ockun added. ``That's not necessarily bad, but it makes life challenging for polymer producers.''
More than 3 billion pounds of new capacity will hit the market in the next couple of years. Although North American sales growth has been strong — up 13.2 percent in 1996 and 7.1 percent in 1997 — the capacity boom may slow things down.
As a result, while resin plants are operating at more than 90 percent capacity, the rates will drop below 85 percent in mid-1999 and below 80 percent in mid-2000 before rebounding in early 2001, Ockun said.
Studies presented by Houston-based consultants Gary Stutzman and Pat Duke at their agencies' conferences showed similar results.
Stutzman of CMAI Inc. anticipates that PP operating rates will rebound to 84 percent by 2002. DeWitt & Co.'s Duke foresees a slower comeback, reaching 81 percent by 2002. And though Stutzman described the 1998-99 period, in which PP pricing is expected to remain soft, as short-term, he admitted it could lead to ``a very competitive situation'' among PP suppliers.
The industry could see softer prices and possible consolidation as a result, Duke said.
Stutzman said PP pricing could be bolstered by a trend that sees processors increasing their use of PP in nondurable goods, such as woven bags, when prices drop.
1997 was a year during which many PP market segments enjoyed sizable growth although PP's largest segment, textiles, grew less than 1 percent, according to Ockun.
The consumer goods segment was the growth leader at 18 percent, while the transportation segment came in second at 11.8 percent.
Ockun and Montell are confident, even as the industry stares down a possible period of decreased margins and oversupply.
``Every time polypropylene looks like it's reached maturity, there's a breakthrough in processing or catalyst technology that's added value,'' he said. ``That projection will continue for the foreseeable future.''
PP produced in 1998 already has improved stiffness, processing ability and clarity over materials produced just five years ago, Ockun added.
PP prices have been relatively steady, losing only 1 cent per pound so far in 1998. Producers are seeking 3 cent price increases that were to take effect April 1.
However, some industry observers have characterized these moves as an attempt to rally prices before the deluge of new capacity hits.
Fina Oil and Chemical Co. of Dallas is scheduled to tip off the building boom by adding 550 million pounds of capacity this year. PP makers with 1999 expansion plans include Epsilon Products of Marcus Hook, Pa., 800 million pounds; Amoco Polymers of Alpharetta, Ga., 550 million; Aristech Chemical Corp. of Pittsburgh, 550 million; and Arco Chemical Co. of Newtown Square, Pa., 400 million.