HOUSTON — PET makers should see their profits hit reinvestment levels in 2002, even as their product continues to be marketed as a performance resin and sold as a commodity. That's the outlook from Kevin Fogarty, vice president and general manager for KoSa Inc., the Houston-based firm that ranks as North America's second-largest PET maker. Fogarty spoke at the DeWitt & Co. World Petrochemical Review, held March 28-30 in Houston.
Producers still are working their way out of an oversupply situation that resulted from the global PET industry increasing capacity an average of 21 percent each year from 1995-99. Those capacity increases have kept profits down, even though global PET demand increased 400 percent from 1990-2000.
The market for 20-ounce single-serve soft drink bottles is an extreme example of this growth. Production of 20-ounce bottles exploded from 130 million in 1990 to 12 billion in 1998, according to KoSa.
Fogarty expects the North American market to be "oversupplied to balanced" in 2000, with PET demand growth in the region approaching 20 percent, led by a tight Mexican market. KoSa is increasing capacity at its Queretaro, Mexico, plant by about 140 million pounds later this year to meet Mexican market needs.
Global demand growth could near 12 percent again in 2000, but improvements still are needed to guarantee the industry's long-term financial health.
"Right now, PET makers are only making money two out of every seven years," Fogarty said. "That has to change, but it hasn't happened yet."
Chemical Market Associates Inc. PET consultant David Witte, speaking at his firm's World Petrochemical Conference, seconded Fogarty's 12 percent growth rate for 2000 and agreed that the PET cycle will hit reinvestment levels in 2002.
Witte also anticipates U.S. PET prices will hit 60 cents per pound in 2000 and increase through 2003, when they will approach 70 cents per pound. After that point, prices should recede close to the 60 cent level by 2004.
Pricewise, PET makers succeeded in raising prices an average of 13 cents per pound in 1999, but because of the market's commodity-like swings, current prices are at roughly the same levels they were in mid-1997. Producers are currently attempting to push through 7 cent-per-pound increases that were to take effect March 1.
Fogarty added that PET's status as a "pseudo-commodity" can be frustrating from a producer's perspective. Although different, specific grades of PET are needed for such applications as water, beer, soft drinks and hot-fill uses, the waves of overbuilding and tightness that characterize the market have moved it into commodity territory, with accompanying spikes and plunges in pricing.
Beer has been described as the pot of gold at the end of the PET rainbow — talk that was revived when Miller Brewing Co. launched a national rollout of PET beer bottles for St. Patrick's Day — but Fogarty was cautiously optimistic about the topic.
"We're participating in the development [of PET for the beer market], and volumes at concert venues and sporting events will increase," he said. "But the industry needs more volumes in major quantities from major brewers.
"Keep in mind that with beer, we're talking about a multilayer packaging that's more complicated to produce," Fogarty added. "The oxygen barrier required [for beer] is also more expensive."
DeWitt PET consultant Edgar Acosta is more vocal in endorsing beer's potential for the PET market. He expects beer to account for nearly 100 million pounds of PET demand in North America in 2000 after totaling less than 40 million pounds in 1999.
Acosta said beer has the potential to increase PET demand by 14 percent during the next 7 years.
KoSa still sees technology playing an active role in improving the PET market's fortunes. Fogarty pointed out that recent improvements in barrier technology expanded shelf life of PET food and beverage containers by a week, with only a 1 percent modification to materials used in the barrier layer.
He added that such modification also has reduced the average weight of a 2-liter soft drink bottle from 56 grams to 47 grams, and that improvements have nearly doubled blow molding speeds from 800 to 1,400 bottles per cavity, per hour.