Major resin makers spent 1998 dancing the limbo at gunpoint.
Prices dropped under the double-barreled threat of overcapacity and decreased exports. Resin buyers openly asked, ``How low can you go?''
And since the overcapacity/ export gun is still loaded, industry executives and analysts contacted recently believe this dance will continue into 1999.
``We see 1999 as being the real trough year, with a slight uptick in 2000,'' said P.J. Juvekar, a chemicals analyst with Salomon Smith Barney in New York. ``But that uptick still won't get back to previous levels.''
Depressed oil prices, which prompted the BP-Amoco and Exxon-Mobil mega-mergers, also will affect plastics markets from a feedstock standpoint in 1999.
``The worst thing that can happen for petrochemical companies is if oil prices creep up slowly, by pennies,'' Juvekar said. ``If the price suddenly jumps $2 a barrel, chemical companies can get price increases through, but if it only goes up a few pennies, they have a hard time convincing their customers that they need an increase.''
The 1999 outlooks for major commodity and engineering plastics are as follows:
Healthy sales and plunging prices flummoxed makers of PE
in 1998. Prices dropped roughly a penny a month, eroding profit margins even as sales grew.
High density PE sales were up 3.9 percent while linear low density PE sales climbed 1.1 percent, according to the Society of the Plastics Industry Inc. in Washington. LDPE trailed its two siblings, as sales dropped 2.1 percent.
``1999 looks like a tough year,'' said Rick Salvador, PE business director for Nova Chemicals Ltd. of Calgary, Alberta. ``Demand has been strong but I don't see market conditions improving much.''
Salvador anticipates 5 percent growth in HDPE and LLDPE demand.
Dow Chemical Co.'s Romeo Kreinberg sees overall industry growth at less than 5 percent in 1999, though Dow's own growth should be between 5 and 10 percent, Kreinberg said.
Both Salvador and Kreinberg, who serves as business vice president of PE, PET and purified terephthalic acid for Midland, Mich.-based Dow, see the stretch film market driving this growth.
Stretch film accounted for almost 14 percent of LLDPE sales in 1997 and 12.5 percent through the first 10 months of 1998, according to SPI.
``Stretch film in particular is still a strong growing market,'' Kreinberg said. ``It's been a big part of our growth and we'll continue to promote it very strongly.''
Salvador pointed out that stretch film sales have grown 10 percent annually in the past few years. Kreinberg identified rotational molding as another top-growth market for 1999, while Salvador said the construction market should be strong, especially for HDPE.
Through October, HDPE sales into the pipe and conduit market were up 20 percent, SPI said.
``HDPE use in housing is booming,'' Salvador said. ``It's out-of-this-world.''
Kreinberg expects Dow's PE capacity utilization to be above 90 percent in 1999, while Salvador said the overall industry utilization rate will be in the 80-85 percent range.
Industry analysts Gary Stutzman and Rob Harvan aren't as optimistic. Although both see relatively high rates for HDPE and LDPE, Harvan expects LLDPE rates to dip into the low 80s while Stutzman believes they'll drop to 75 percent.
But Stutzman, with Houston's CMAI Inc., does see some short-term relief for PE makers in the form of an 8-10 percent price increase that should go through late in the first quarter or early in the second quarter of 1999. At current pricing levels, that should equal a jump of 3-4 cents per pound.
``The increase should go through because of tight processor inventories,'' Stutzman said. ``Unfortunately, it might not last because the underlying fundamentals aren't very strong.''
The early price move will be crucial to industry success in 1999, according to Harvan, with Houston's Bonner & Moore Associates Inc. consulting firm.
The PE market ``is like a World War II movie where there's a bomber, with a couple of engines out, kind of limping through,'' Harvan said.
``I'm concerned that if it doesn't get up or stabilize [in the first quarter], 1999 might start to look like a bad year.''
Pricing pressure will continue to be highest in LLDPE, where producers already are in negative territory on margins, according to Stutzman. LDPE margins will remain positive, although Harvan said it will continue to lose market share to LLDPE, particularly in commodity areas like liner-grade film.
The supply situation will remain flush in 1999, as expansions by Equistar Chemicals LP of Houston and Mobil Chemical Co. of Fairfax, Va., will join recent capacity additions from Dow, Exxon Chemical Co. of Houston, Fina Oil and Chemical Co. of Dallas and Westlake Polymers of Houston. In total, the late 1998 and 1999 expansions will add about 2.8 billion pounds of PE capacity to the North American PE market.
As a result of this temporary glut, Salvador said producers may cut back slightly on production in 1999, but won't go so far as to shut down entire plants.
``Chemical plants can't sit idle,'' he said. ``They need a base load, so producers are very aggressive in ensuring they can run at some level.
``But until demand catches up, it will be tough. If producers are responsible and reduce utilization and keep inventories low, that will allow prices to rise,'' Nova's Salvador said.
Polypropylene sales representatives calling on customers this year will have to fight for a place in line, as no less than four firms will launch major capacity expansions.
Amoco Polymers of Alpharetta, Ga.; Epsilon Products of Marcus Hook, Pa.; Aristech Corp. of Pittsburgh; and Arco Products of Los Angeles all are launching new PP lines that will add more than 2 billion pounds of capacity to the North American market.
``1999 could be as difficult a year as we've seen since the late '70s or early '80s,'' said Tom Boal, business planning manager for market leader Montell Polyolefins of Wilmington, Del. ``It will be a very competitive year with a lot of people going after business.''
Epsilon President Phil Jardine agreed, saying the added capacity will create ``a challenging market environment'' in 1999.
The new capacity will maintain pressure on PP prices, which dropped an average of 6 cents per pound in 1998, severely battering producers' profit margins.
Both Boal and Jardine see PP sales continuing to grow in 1999, surpassing the 4.6 percent growth SPI projected for 1998. Boal anticipates total growth of about 6 percent; Jardine's projection falls around 6-6.5 percent.
``We see a solid continuation of demand in most market segments and a real surge in storage containers and appliances,'' Jardine said.
Boal foresees strong sales in consumer markets such as small appliances and containers, as well as in automotive markets such as instrument panels and dashboards.
He cites a garbage-bag producer's recent decision to package bags in a reusable PP container instead of a disposable cardboard package as a sign of the market's strength.
Jardine's list of growth areas for PP include thermoformed containers and thin-wall molding for yogurt and dairy products, larger automotive interior-trim parts, a substrate in biaxially oriented and cast film, and increased competition with nylon in the carpet market.
PP will continue to replace PVC, polystyrene and ABS in appliances, business machines and computer housings, said Paul Ita, a consultant with the Freedonia Group in Cleveland. PP also will replace engineering resins that are ``over-engineered.''
``In some cases you don't need a material with all of the properties of an engineering resin,'' Ita said.
But the growth will come as the industry suffers through some serious growing pains.
``It's the normal cycle of overbuilding you see in the petrochemical industry,'' said Pat Duke, a consultant with DeWitt & Co. in Houston. ``But in this case, perhaps it's more than expected because [PP] has grown faster than anyone anticipated.''
Ita said the overcapacity situation could go on for the next five years.
``This is a major concern,'' he said. ``Without a doubt, we need a lot more restraint on the part of big producers than we've seen.''
Boal said such restraint could come as early as mid-1999, when producers that are breaking even or losing money will have to decide if they should shut down some of their PP operations.
Jardine isn't so sure that will happen.
``Normally, willingness to cut back utilization rates isn't high on producers' priority lists,'' he said.
Duke sees the turning point for PP arriving in early 2002.
``Spring 2002 is the light at the end of the tunnel, but the big hurt's going to come in 2000, when we'll see the real production from the plants being brought on in 1999,'' he said. ``Operating rates could drop to 80 percent.''
Both Boal and Jardine expect 1999's utilization rates to be about 87-88 percent. Ita sees those rates falling into the low 80s.
A couple of basic scenarios can play out in the PP market, according to Montell's Boal. The first would have growth stay at 6 percent and no production shutdowns. In that case, market profitability would not rebound until 2003.
In the second scenario, revived exports, lowered production and ``growth price'' substitutions would boost annual growth to 8 percent, allowing the market to begin its comeback in 2001.
Regardless of the outcome, 1999 promises to be eventful.
``1999 will be a year of change,'' Boal said. ``We'll see a different market.''
Industry expectations for 1999 vary like the weather. That makes sense, of course, since the weather has a major effect on the construction industry, which gobbles up more than half of all PVC sales.
North American PVC sales were up 4.9 percent in 1998, according to SPI, even though U.S. prices dropped an average of 8 cents per pound. Year-end price increases totaling 2 cents went through to some buyers while others were able to fend them off.
Drastic cuts in Asian export sales caused material to back up in North America, where an aggressive spot market drove prices down.
The construction industry once again drove the PVC market in 1998. Sales into vinyl siding, which makes up about 15 percent of the market, were up almost 17 percent through October.
Pipe continued to dominate the market, consuming almost 40 percent of sales while growing at a 1.1 percent rate through October.
Occidental Chemical Corp., the Dallas firm that became the North American market leader when it announced it would acquire control of Geon Co.'s PVC operations, doesn't expect much improvement in 1999.
OxyChem expects domestic demand growth of only 1-2 percent because of projected slowdowns in housing starts and the U.S. economy, as well as waning consumer confidence, said Stacy Palmatary, commodity resins vice president.
``Domestically there will be positive growth, but I don't think the industry can maintain its level of exports to Latin America, which it's done to offset the drop in Asian exports,'' Palmatary said. ``It could be 2000 before we see a really significant turnaround.''
Palmatary added that domestic growth will appear to be stronger than 1998 earlier in the year but will slow down quite a bit later in the year.
Officials at Condea Vista Corp., a smaller PVC maker based in Houston, are more optimistic, expecting growth of 5-6 percent in 1999.
``If no additional capacity is brought on, 1999 will be a catch-up year as we let demand catch up with supply,'' said Vista PVC sales manager Charlie Matson. ``Late in the year, we could see the export market start to come back as the Asian situation improves. The supply-demand situation won't be gangbusters, but it'll still be pretty good.''
Ironically, Vista's own decision to sell its 450 million-pound-per-year Oklahoma City PVC plant to Eagle Pacific Industries Inc. of Minneapolis could tighten the market. Eagle Pacific will use 330 million pounds of that capacity internally each year.
Matson identified vinyl fencing as the fastest-growing niche market for PVC.
``Fencing is catching on with consumers like the replacement of siding did because of the no-maintenance aspect,'' he said.
Industry officials said the PVC market will have an opportunity to raise prices early in the year, but once again will face slow erosion later in 1999.
Polystyrene makers are expecting moderate growth again in 1999 as the industry struggles with overcapacity and sagging prices.
This battle already is producing some casualties. Huntsman Corp. sold its solid PS business to Nova in 1998, allowing Nova to surpass Dow as North America's largest PS maker. Nova then turned around and announced plans to close Huntsman's solid PS plant in Peru, Ill., late in 1999, removing 120 million pounds of annual capacity from the market.
After seeing a North American sales increase of less than 2 percent in 1998, producers are expecting a jump of 2-3.5 percent in 1999.
``We're looking at growth in line with [gross national product] forecasts, around 2 percent,'' said Nova PS Vice President Ron Hornack. ``There's no huge driver in the marketplace for a fundamental shift in the market.''
Dow officials said the industry could see more shutdowns and consolidations in 1999. ``As producers continue to be hit with negative profit, they become unwilling to live with those results,'' said Dow global PS Vice President Kathleen Bader.
``More uncompetitive, high-cost plants will be taken out,'' said Bob Beil, Dow's North American PS commercial director. ``That will help accelerate the turn into recovery.''
Packaging uses, especially in food, will continue to lead the PS market.
``Look at our lifestyles,'' Nova's Hornack said. ``We eat out quite a bit and there's a lot of use of clamshell containers in full-meal carryouts and pre-prepared meals as our lifestyles get busier.''
Industry consultant Ita mentioned refrigerators and computer housings as potential growth areas for high-impact PS, though both Ita and consultant Alex Lidback said PS makers will have their work cut out for them in 1999.
``1998 was the most-competitive market ever and the least-profitable year ever,'' said Lidback, a consultant with CMAI.
Lidback also predicted that operating rates will remain below 90 percent until 2001 and that poor profitability will lead to capacity and ownership rationalization.
Profit margins should improve slightly in the near-term, though pricing will remain relatively flat, he added. North American PS makers are working to push through a 4 cent-per-pound hike that was to be effective Jan. 1.
Pricing was down slightly in 1998 as the surprise success of an early price increase wore off over time, eventually sliding prices below year-end 1997 levels.
PS makers also are feeling the heat from intermaterial competition, Ita said.
``There's a lot of intense competition from polypropylene and polyethylene, particularly in rigid containers,'' he said. ``Polystyrene hasn't seen new-product introductions and versatility and that's having a commercial impact.''
Hornack countered that PS's versatility will allow it to hold its own against competing resins.
``Any time you've got a high-volume product that's strong in four processes — injection molding, thermoforming, extrusion and foaming — people don't choose it solely on price,'' he said. ``Some choose it on functionality.''
Officials and analysts agreed that PS operating rates should be in the mid-to-high 80s in 1999.
PET makers in 1999 are looking to overcome some weather and machinery troubles that cooled the market's growth in 1998.
Most other commodity plastics producers gladly would have settled for the 8-10 percent sales jump PET saw last year. But PET makers were disappointed after expecting demand in the range of 15-17 percent.
``1998 was a difficult year for most PET producers from a profit standpoint,'' said Jim Lewis, vice president and general manager of container plastics for market leader Eastman Chemical Co. of Kingsport, Tenn. ``We thought demand was going to be there when we looked at the single-serve market, but we couldn't account for the problems with machinery and the weather.''
The weather problems Lewis referred to were wetter-than-normal conditions on the West Coast that hampered PET-heavy beverage sales.
The machinery trouble stemmed from a lack of machines that could handle the large numbers of preforms needed to make single-serve bottles. Improved technology also is allowing bottle makers to decrease their resin consumption while boosting bottle output, Lewis said.
Undaunted, producers and analysts are projecting growth of 12-17 percent in 1999, fueled by continued growth in the single-serve market and potential additions from milk, mineral water and such nonbeverage markets as mayonnaise and cooking oil.
``Single-serve is just getting started,'' Lewis said. ``As we come up with more breakthroughs with the material we'll be able to produce smaller carbonated-beverage bottles. The standard size isn't in vogue.''
The North American market should again be oversupplied in 1999, resulting from new capacity brought on by Wellman Inc. in late 1998 and early 1999. Nan Ya Plastics Corp., DuPont and Shell Chemical Co. also plan to add capacity by the end of 2000.
The market also will be pressured by low-priced Asian material making its way to North America as demand in that region drops.
Shell expects the global oversupply situation to peak in mid-1999, with the market tightening rapidly from that point forward, said Mark Adlam, Shell's global market manager for bottle resin.
Edgar Acosta, a consultant with DeWitt & Co. in Houston, anticipates 15 percent growth for PET in 1999.
Acosta has projected a 9.2 percent annual growth rate between 1997 and 2002. However, that number could jump to 20 percent if beer makers switch to PET, or 17-19 percent if DaimlerChrysler AG decides to use glass-reinforced PET in car bodies.
``The market is waiting for a mass-market launch because of low prices,'' Acosta said.
Pricing continued to be unsteady in PET in 1998, as the traditional summer price push was overcome by fall and winter drops that went below year-end 1997 totals.
``The importance of price improvement in the industry isn't lost on anybody,'' Eastman's Lewis said. ``Everybody's below reinvestment levels right now.''
The North American market was realigned somewhat in 1998 when Hoechst AG sold its Trevira PET business, the second-largest North American producer, to KoSa, a consortium of Koch Chemical Co. of Wichita, Kan., and Grupo Xtra, a Mexican investment group.
1999 could bring more changes. Shell intends to sell or find a partner for its PET business, which ranks fourth in North America. Even Eastman has been subject to acquisition rumors fueled by 1998 earnings that fell way short of Wall Street expectations.
Rumors aside, Lewis said Eastman was glad to hear KoSa affirm its commitment to the PET industry after buying Trevira.
``We were feeling like the Lone Ranger for a while." Lewis said.
PET makers will have to steel themselves to make it through short-term pricing weakness and material overcapacity.
"A lot of the low-hanging fruit has been picked." Lewis said. "easy packaging uses have driven growth in the past, but that's already been done. We need to move into more difficult packages with improved color and better barrier performance."
Just when ABS makers thought they'd been given a reprieve by a relatively successful 1998, along comes more capacity- this time in the form of 150 million pounds of production that BASF Corp. will add at a styrenics plant in Altamira, Mexico, later this year.
With 1 percent sales growth in North America last year, the ABS market ended a streak of three straight years of reduced sales.
The much-needed boost can be chalked up to a strong economy and more appliance sales, said Bruce Kleinert, ABS business director for Bayer Corp. of Pittsburgh.
"ABS system sales for refrigerator linings had been growing 1-2 percent but were up 5-7 percent last year,"Kleinert said. "If we can duplicate 1998 we'd be thrilled."
New coextruded sheet applications in thermoforming, such as traffic signs and recreational vehicle panels, also helped out, he added.
But U.S. prices continued to fall throughout the year, dropping a total of 6 cents per pound by December. ABS price drops have continued to hurt profitability, which could lead to production cuts in the North American market, where Bayer ranks second between GE Plastics and Dow.
"We've been taking a hard look at the complexity of our product lines. We may produce fewer grades, which could lead to a drop in production, "Kleinert said. "It would really be product consolidation to avoid redundancy."
Also, the ABS market almost has recovered form the effects of last summer's General Motors strike, which caused many first-tier processors to push their orders back a month or more. Automotive is one of ABS' largest end markets, along with appliances and information technology.
Capacity utilization should be around 83 percent, but Kleinert pointed out the market is so differentiated into specialized grades that it can be in a tight situation even at 85 percent of capacity.
CMAI's Lidback places capacity utilization at less that 80 percent. He also expects per-pound prices for injection molding grades to remain below 70 cents per pound in 1999.
And it takes one heck of a year to get an ABS exeutive to quote a Hollywood Jezebel.
"1999 has the largest range of possibilities, both in the economy and ABS, that we've seen in a number of years." Kleinert said. "It's like Bette Davis said: 'Fasten your seat belt, it's going to be a bumpy night.'"
Maintaining high growth in polycarbonate apparently is as simple as finding the right abbreviation. In 1999, for example, PC market leader GE Plastics is banking on digital versatile discs after having years of success with compact discs.
GE PC business manager Bill Driscoll expects 10 percent grouwth in 1999 - after seeing "only" 8 percent growth in 1998 - thanks to reduced prices for DVD players, which can play both digital movies and standard CDs.
"The affordability of DVD equipment is really having an influence," Driscoll said. "Some are prices as low as $300, and that opens up a whole portfolio of optical media products, including CDs, CD-ROMs and DVDs. It's a big change in data storage."
GE's 1999 PC plans also include using unique color effects as marketing tools in consumer appliances and vacuum cleaners, Driscoll said.
On the 1998 pricing front, GE, Bayer and Dow fought a pitched battle with customers to raise prices by 6 cents per pound. Most buyers were able to ward off this increase, however, citing capacity additions that kept the market well-supplied.
In the past 18 months, Bayer has added 120 million pounds of PC capacity in Baytown, Texas, while Dow has added 40 million pounds in Freeport, Texas. Internationally, GE will bring on almost 300 million pounds of new capacity in Cartagena, Spain, early this year.
Industry analyst Austin Peppin said PC prices could remain soft in the first half of 1999, but should firm up later in the year as growth absorbs excess supply.
Peppin, president of Peppin & Associates Inc. of Chesterfield, Mo., said maturing markets for appliances, houseware and sheet could contribute to this market softness.
With 1 billion pounds of annual production, PC holds almost 38 percent of the North American engineering thermoplastics market, trailing only nylon in market share, according to Peppin, GE, Bayer and Dow account for 80 percent of North American production.
Nylon makers hope to stay behind the wheel in 1998, with growth coming in at 6-8 percent in 1999 as automotive parts programs that have been in development reach full commercialization.
"Growth will continue to be driven by automotive in powertrains and air-intake manifold," said Michael Crickenberger, Americas business manager for market leader DuPont of Wilmington, Del. "We've hit the point in the growth cycle where projects that have been around for two or three years are becoming commercialized."
These uses could push automotive sales into double-digit territory, said Raj Mehta, engineering resins business director for BASF Corp. of Mount Olive, N.J., which ranks as North America's third-largest nylon maker.
"Intake manifolds are pretty well-established," Mehta said. "Now we're going after entire transmission systems."
Mehta expects industry utilization rates to be in the low-to-mid 90s. Automotive will remain the largest end market with more that a 40 percent share.
No significant capacity additions are planned, and producers and consultants expect prices to remain relatively flat.
Pressure for price increases should continue, however, said Peppin, as fiber production puts greater demand on raw materials.
Fibers account for about 75 percent of nylon demand and have a major impact on the resin market as a result. Crickenberger pointed out raw material supply that was tight in early 1998 leveled off during the year as the fiber market slowed down.
In nonautomotive markets, high-temperature nylon will find new uses in computer connectors in 1999. Blow molding nylon grades also could replace aluminum in automotive cooling systems, he said.
Mehta added that although nylon use in multilayer film is on the rise, the industry should see only moderate growth in the packaging and wire and cable markets.
Nylon makers have almost fully recovered from delivery delays and postponements caused by the GM strike.
The only significant industry change in 1998 occurred when Dow formed a partnership with Solutia, Inc. Dow became the sole compounder for St. Louis-based Solutia's nylon 6/6 resin in injection molding applications.
Although some market observers have suggested nylon, the largest-volume engineering resin with about 42 percent of the overall market, is moving toward becoming a commodity material, Mehta siad that characterization still is pretty far off-base.
"When you grow two to three times GNP for 10 years as nylon has done, you can throw out the word commodity," he said. "This might be a billion-pound-a-year material, but producers were able to increase prices several times in the last business cycle."
Thermoplastic elastomer growth will continue at a vigorous 6-8 percent rate in 1999, as the plastic/rubber hybrids look to move beyond replacing thermoset rubber into more wide-ranging uses, producers said.
"Our focus used to be on replacing rubber," said Zev Gurion, director of product management and corporate development for Advanced Elastomer Systems in Akron, Ohio. "Now our strategy is broadened and we're looking at replacing any products that offer elastomeric value, including high-end PVC."
AES expects in thermoplastic vulcanizates to lead TPE product growth with an increase as high as 12 percent in 1999. Among other TPE products, copolyesters should gorw 10 percent, styrenic block copolymers should grow 5-6 percent and thermoplastic polyurethanes should see less than a 5 percent boost, according to AES.
``Automotive will continue to be a major part of our business,'' Gurion said. ``But we'll see increases in other segments as well, including construction and the consumer products markets.''
New thermoplastic vulcanizate grades should offer improved abrasion resistance, while softer grades will provide better adhesion to other plastics in ``soft-touch'' applications like power-tool handles, Gurion added.
Malcolm Thompson, sales director for DSM Thermoplastic Elastomers in Leominster, Mass., said his firm ``remains pretty excited'' about the potential of its TPVs, particularly in automotive air ducts. 1999 growth should be 8-10 percent, Thompson said.
But Thompson added TPV makers have their eyes on a larger prize: automotive weather seals.
``Extruded weather seals are the Holy Grail,'' Thompson said. ``That's 20 pounds of material per vehicle. It's a huge global market with the potential to dwarf our existing markets.
Improved technology has produced TPVs with performance similar to that of ethylene propylene diene monomer rubber, which currently dominates the weather-seal market, Thompson said.
In copolyesters, growth should be about 8 percent as expected slowdowns in the U.S. economy lessen 1998's 10 percent growth rate, said Steve Hartig, business vice president for DSM Engineering Plastics in Evansville, Ind.
Both DSM TPE businesses are units of DSM NV of Sittard, the Netherlands.
The automotive market will continue to consume more than half of copolyester output through such applications as air-bag doors, but breathable film also should make inroads in medical uses such as gowns, drapes and bandages.
The breathable film can be used in doctors' and nurses' surgical clothing to absorb and distribute perspiration during surgery. It also can absorb blood and other fluids, preventing them from touching the skin, DSM copolyester product manager David Pomerantz said.
In TPUs, growth should be 5-7 percent below 1998 levels, primarily because of a sizable drop in the athletic footwear business, according to Michael Marasch, TPU marketing manager for BFGoodrich Co. of Richfield, Ohio.
Athletic footwear applications make up about 10 percent of the 100 million-pound-per-year TPU market.
``Teenage fashion moved away from athletic shoes,'' Marasch said. ``Nike and Reebok took a heavy hit.''
To compensate for the loss, Goodrich plans to focus on rubber and nylon replacement in the hose and tubing markets, including pneumatic tubing for industrial automation uses. Marasch said he expects TPU pricing to remain relatively stable in 1999.