There's a good chance that Jeff Denton, Chuck Platz and Jeff Taylor each were taller a few years ago. Then the weight of the commodity resin markets where they dwell started to get a bit heavier, as feedstock costs climbed and demand cooled.
Now, they might need stepladders to reach that bottle of Rolaids behind the bathroom mirror.
But the three resin executives braved the outside world and confronted the reality of today's market at the 2004 Plastics News Executive Forum, held Feb. 1-4 in Summerlin.
Taylor, polyethylene vice president for low density PE maker Westlake Group of Houston, cited global feedstock costs and imports of fabricated plastic products as ``the two big issues'' facing PE producers and users in the United States and Canada.
``The Far East benefits from lower costs in almost every area,'' said Taylor, who spent most of his 25-year PE career with Chevron Chemical Co. before joining Westlake in 2002. ``[Asian] fabricators have benefited from lower machinery, labor, regulatory and resin costs.''
Taylor described U.S./Canadian PE demand during 2003 as ``somewhat disappointing,'' with overall market demand - including high, low and linear low density PE - down about 2.5 percent. Growth is projected for 2004, which would return the industry to its 1999 volume levels.
The industry continues to recover from 2001, which Taylor described as ``the worst year in at least 20 years.'' Recent indicators are positive, however, with December and January sales being ``stronger than normal.''
For HDPE, Taylor cited gas tanks and performance pipe as growth areas in 2003, while markets for conduit and rotational molding were down.
Consumer pricing also has played a role in PE profitability. Taylor pointed out that Wal-Mart has kept its prices for a standard HDPE trash can at $5.99 for the past 10 years.
``We're all scrambling for margin beneath that,'' he said.
After the storm
Industry consultant Robert Bauman, who also spoke at the forum, echoed some of Taylor's views, saying that the North American PE market is emerging from a ``perfect storm'' that saw the worst financial performance in its history. The 2000-03 downturn also saw 3.5 billion pounds of older, less-efficient capacity shut down in North America.
His longer-term projections for the market are more rosy, with a ``fly-up'' beginning in 2005 leading to global operating rates above 90 percent by the second half of that year. Overall annual global PE demand is set to grow about 60 percent between 2002 and 2007, moving from 119 billion pounds to more than 190 billion.
Bauman, who is vice president of polymers for Nexant Inc. in Houston, also sees feedstock costs decreasing to more affordable levels of $3.50-$4.50 per unit for natural gas and $22-$28 per barrel for crude oil after 2005.
But imports of fabricated PE bags will continue to take volume away from the North American PE market. Half of those bags come from China, where Bauman said the cost of converting a ton of HDPE bags is $131 - 6 cents per pound - vs. $599, or 27 cents per pound, to do the same in North America. However, that trend could be slowed by a recent Commerce Department ruling that levies 80 percent anti-dumping fees on Chinese PE bags.
Bauman also questioned the possibility of lower-price PE resin making its way into the U.S. market from Saudi Arabia and other Middle East nations where natural gas can cost as little as 75 cents per million Btu. Many projects in that area have been delayed, and Bauman said producers such as Sabic face major logistic hurdles getting their PE into North America.
In polypropylene, producers need to think about ``organizational agility,'' said Platz, who serves as president of PP leader Basell North America in Elkton, Md.
The 2003 U.S./Canadian PP market was hit by ``great global upheaval'' in political events and high feedstock costs and, as a result, eked out growth of only 1 percent; well below the 8 percent Platz and Basell had expected. Undaunted, Platz now foresees a 7 percent uptick in 2004.
Basell will keep about 800 million pounds of capacity idled in 2004. Platz, who has spent his 34-year career with Basell and its corporate predecessors, said that capacity could be brought back in late 2005 and early 2006. He said PP produced at a plant operated by Conoco Phillips Corp. in Linden, N.J. - opened last year and marketed by Basell - is ``sold out.''
In Platz's view, PP makers should try to focus on basic material replacement vs. metal or wood, rather than on replacing other plastics.
``The difficult change is going from other materials into plastics,'' he said. ``Once they're in plastics, sooner or later they end up in polypropylene.''
Challenges facing the North American polystyrene market might continue for the next few years, with annual growth expected to average 1.5 percent through 2008, said Denton, North American PS marketing director for Dow Chemical Co. in Midland, Mich.
``Unfortunately, North American industry capacity is a flat line,'' said Denton.
Global PS market growth is expected to be 3 percent annually through 2008. In North America, PS sales into extrusion have increased, but sales into the injection molding market have gone in the other direction, Denton said.
Hope for PS may lie in technological improvements that have allowed appliance makers to improve the performance of interior liners, and in advancements in clear grades of high-impact PS.
