HOUSTON — PET industry consultant Edgar Acosta doesn't want anyone to underestimate how tight things are in the PET market. As a result, he describes the industry's recent business practices as ``tourniquet economics.''
``Right now, we're looking at a situation where several companies are losing money in PET but are holding on to volume very tightly,'' said Acosta, a consultant with Houston's Dewitt & Co. ``We're seeing prices drop very quickly and the bottom of the market is rapidly approaching.''
Acosta defined tourniquet economics as the practice of drastically reducing prices below cash costs to hold on to market shares threatened by volumes marketed at or below variable costs. He said most North American, South American and European PET producers are taking these steps to protect their market share from lower-priced Asian material.
The result has been plummeting PET pric-es and profitability, which has lead some to take drastic action.
Hoechst AG sold its PET business to the newly formed KoSa alliance, while Shell Chemical Co. recently put its PET operations on the selling block. Even industry leader Eastman Chemical Co. has been rumored to be in the market for a partner or buyer.
Rapid capacity expansion also has led to oversupply in the North American market. Acosta, who spoke at the DeWitt World Petrochmeical Review, estimates North American supply will exceed demand slightly this year. The problem is much worse in the Asia-Pacific market, where supply exceeds demand by more than a billion pounds, leading to increased exports to the rest of the world.
But PET makers are staying in the game in the hopes of winning the highly coveted beer market, which Acosta described as ``the second coming of PET.''
If beer makers buy into PET bottles, global PET demand could reach 30.9 billion pounds by 2007. Even without beer, PET demand should hit 24.2 billion pounds at that point. In 1998, global production stood at 10.2 billion pounds.
Beer makes up 25 percent of the global beverage market and plastic beer bottles currently are being marketed in North America, Europe, Asia and Africa, including a multilayer PET bottle that Miller Brewing Co. marketed at Super Bowl XXXIII in January.
For that game, Miller brands outsold those of global beer leader Anheuser-Busch by 40 percent, Acosta said. Miller's sales also were up 50 percent from the previous year's Super Bowl. Acosta expects Anheuser-Busch to test market a competing bottle made of polyethylene naphthalate this year.
Other acquisitions among PET processors, including Owens-Illinois Inc.'s acquisition of Continental PET Technologies, are signs of the growing acceptance of beer's conversion to plastic, Acosta said.
``We fully expect the beer market to have a PET container within the next two years,'' he said. ``Selling out of the PET business is short-sighted if you want to get into a business with high growth potential.''
Overall, 1999 should be ``an equalizing year'' in which producers and marketers hit bottom. By the end of the year, a new order should emerge in which regional producers will compete with integrated oil subsidiaries.
``We fully expect Eastman and DuPont to venture into regional agreements,'' Acosta said. ``We'll also see several major polyester companies with ties going all the way back to oil, and with regional ties as well.''
