HOUSTON — Polypropylene should extend its reign as the world's fastest-growing commodity resin, but excess capacity could keep the industry's operating rates and profit margins down through 2001. "The market is still growing because of technological enhancements and material substitution," said H. Patrick Jack, president and chief operating officer of Aristech Chemical Corp., a Pittsburgh-based PP producer. "But extra capacity of 10-20 percent in excess of demand growth is being built through 2004."
The result will be record-low operating rates of slightly above 80 percent of capacity, reached sometime next year in North America, said Jack, who spoke at the DeWitt & Co. World Petrochemical Review.
The low operating rate of 83 percent will be hit next year, after which the North American market will rebound to pass the 90 percent mark sometime in 2003, according to Graham Harris, an analyst for Chemical Market Associates Inc., who spoke at his firm's World Petrochemical Conference. Both events were held recently in Houston.
Globally, the operating slump also will bottom out in 2001 before rebounding past 85 percent in 2003, Harris added.
In North America, Exxon Chemical Co. and Dow Chemical Co. expect to add more than 1 billion pounds of capacity in 2000, introducing more material to a market that saw more than 11 percent growth in both demand and supply in 1999. PP producers used that growth to push through an average of 8-10 cents per pound in 1999.
That strong demand looks to continue, with the U.S./Canadian market averaging 7.4 percent annual growth through 2004, Jack said.
Mega-consolidations such as Montell-Targor, BP-Amoco, Exxon-Mobil and Dow-Union Carbide also are reshaping the PP world, making it more challenging for a midsize producer such as Aristech to remain competitive.
"Through consolidation, everyone's driving cost out of the system," Jack said. "Even those who aren't going through consolidation have to look at cost reductions and economies of scale."
At Aristech, a cost-cutting approach led the firm to reduce operating costs by $40 million in 1999. Of this amount, $15 million came through personnel moves, Jack said.
Jack credited technological improvements with making PP tougher and more crystalline, which has allowed it to continue to fight other polymers for applications. In 1999, those improvements allowed PP to take some thermoforming business away from polystyrene, he said.
Larger PP plants eventually will lead to the shutdown of older, smaller units. Lingering rail transportation problems eventually could make U.S. industry "less competitive in the world marketplace," Jack said.
Last year's demand growth was broad-based, but markets for durable goods such as molded parts for the automotive and appliance markets showed slightly higher growth of around 15 percent. Molded PP housewares also continued to encroach on PS and high density polyethylene.
"I've never seen the demand base so broad," Jack said. "Our customers are healthier financially than I've ever seen them."