The polyethylene industry's long road back to health already may have begun.
``We're off to a good start this year,'' said Robert Buesinger, PE sales manager for Chevron Phillips Chemical Co. LP of Houston. ``Higher-cost capacity has been shut down and there's also been some consolidation among processors, which has taken out excess extrusion and molding capacity.''
Buesinger spoke at the DeWitt World Petrochemical Review, March 20-21 in Houston.
The North American PE field has nowhere to go but up in 2002, as it's coming off a year in which sales for high, low and lineas low density PE slipped 8, 10 and 1 percent, respectively. Resin makers have done their part by idling more than 1 billion pounds of capacity in the past 18 months.
Buesinger expects total growth of 4-6 percent in 2002, as processors seek to rebuild inventory and the U.S. economy starts to bounce back in the second half of the year.
Making the distinction between inventory restocking and a true growth curve is becoming more difficult for resin makers as processors follow the lead of megaretailers like Wal-Mart Stores Inc. and carry less and less inventory, Mark Healey, ExxonMobil Chemical Co. PE marketing manager, said in Houston.
``It's harder now to separate [restocking and growth] than it ever was,'' Healey said. ``We're cautiously hoping for a second-half recovery.''
Houston-based consulting firm Chemical Market Associates Inc. anticipates operating rates for HDPE, LDPE and LLDPE will improve in 2002. HDPE should settle at a 79 percent rate, with LDPE at 88 percent and LLDPE at 78 percent.
Eyeing global trends
CMAI consultant Howard Rappaport said that although things appear to be improving, PE makers and processors have to be aware of larger global trends, like the volume of PE bags imported into the United States tripling in the past five years. In 2001, more than 100 billion bags - equating to more than 1 billion pounds of resin consumption - made their way into the United States.
``We may not be receiving much foreign resin into the U.S. today, but we're receiving a heck of a lot of finished product,'' Rappaport said at his firm's World Petrochemical Conference, also held March 20-21 in Houston.
Of the imported bags, almost 40 percent came from China, with 15 percent coming from Canada. Rappaport said much of the Canadian portion probably originated in China, making China responsible for about half of the total.
``To a retailer, whether a bag's made in Shanghai or Cincinnati isn't going to matter,'' he added. ``The only things that matter are price and if it gets to the store on time.''
PE makers' recent successful price increase - and their push for more - has changed the market dynamic somewhat in early 2002, according to DeWitt consultant Pat Duke.
``PE buyers didn't believe the first increase would go through, so they sat back and didn't buy ahead,'' he said. ``But [the first increase] did go through, so now [buyers] are taking the second increase more seriously.''
Buesinger added that the industry still is feeling a domino effect that began in late 1999 when processors loaded up on inventory in anticipation of Y2K troubles. Those problems never arrived, but as a result, processors had bloated inventories when demand started to slow in mid-2000. They then began a long inventory-shedding process that continued almost unabated into late 2001.
Technological improvements are giving Buesinger hope that PE is on the right track. He cited converting technology that is creating coextrusions of three, five, seven and nine layers, as well as resin technology that is driving emerging markets like HDPE fuel tanks, plastic lumber, large-diameter pressure pipe and new barrier films.