The economics of making polyolefins are changing. That's not really good news for the polyethylene market, but polypropylene should fare better in the years ahead.
Industry consultants Nick Vafiadis and Bob Dennett tackled those two markets - which account for almost two-thirds of major thermoplastic demand on a global basis - at a plastics processors conference hosted June 30 in Chicago by Houston-based Chemical Market Associates Inc.
For PE, problems start at the raw material level.
By using natural-gas-derived ethane as a feedstock for most of their PE - instead of crude-oil-derived naphtha - North American PE makers until recently had enjoyed a price advantage of almost 5 cents per pound vs. the rest of the world, according to CMAI's Vafiadis.
By 2003, with natural gas demand up and supplies not growing, that advantage had turned into a 5 cent-per-pound deficit.
As a result, Vafiadis said, North America could be a net importer of PE by 2007.
That economic change ``will have tremendous ramifications on the way the [North American PE] industry operates,'' he added.
The North American market also has been affected by lower-priced finished goods, particularly plastic bags, making their way into the market from Asia.
``PE demand now is growing at rates below [gross domestic product],'' Vafiadis said. ``That shows the impact of imports chipping away at a greater rate.''
Another result of that shift has been the disappearance of new PE capacity.
The North American market had a net gain of about 1.5 billion pounds of capacity in the 2000-03 period, but in 2004-10, the only slated addition is a Mexican project initiated by Pemex Petroqu¡mica SA. In that stretch, most of the world's PE growth needs will be met by plants in the Middle East and Asia, Vafiadis said.
PE pricing will ``trade in a narrower band'' in the near future as the market matures, he added. CMAI's forecast indicates that PE prices for 2004 peaked in June, and should decline slightly before starting to rise again in December.
``Prices will trail off, but not by much,'' Vafiadis said. ``But we shouldn't see the wide variations in pricing that we've seen in the past.''
And even though Saudi Arabian PE can be shipped into North America at a 40 percent price advantage, lower shipping costs and a surging Asian market will serve to keep most Saudi material in China instead of North America.
The near future also will include growth rates of 2-21/2 percent for low density PE, 4-5 percent for linear LDPE and 3-4 percent for high density PE, according to CMAI.
The North American PP picture is a tad rosier, thanks to the material's affordability and continued strong demand, Dennet said.
PP now constitutes almost one-fourth of demand for the world's major plastics - making it the largest single polymer in the world - but its cost per cubic inch remains the lowest at less than 1.5 cents. Competing materials such as HDPE and polystyrene have cubic-inch costs ranging between 1.5 and 2.5 cents.
PP demand in fiber has been hurt by a change in carpeting styles, and sales into blow molding have been disappointing, but the North American export market has remained strong and the injection molding market has soared, Dennett said.
In 1996, North American injection molding consumed about 3 billion pounds of PP. By last year, that number had soared close to 5 billion pounds. Good heat resistance and ease of recycling have helped PP gain wide acceptance in the automotive market.
Looking ahead, Dennett said tight supplies of propylene feedstock could keep resin prices high and help PP makers improve their margins.
Another looming issue is actual PP capacity, since only one project is on the North American schedule right now, even though demand is growing at a 5 percent clip in 2004.
``We've got some hypothetical capacity built into our projections, even though nothing's been announced,'' Dennett said.
``If not, we're going to have operating rates of more than 100 percent.''