In a drastic reshuffling of the resin deck, North America could be a net importer of both polyethylene and PET by 2009. That change significantly would reduce North America's status as the world's resin kingpin.
Predictions of the big change were made by Chemical Market Associates Inc. consultants Nick Vafiadis and Chase Willett at CMAI's World Petrochemicals Conference, March 30-31 in Houston. Vafiadis' PE outlook was seconded by Vaughn Deasy, vice president of polymer sales for PE maker Equistar Chemicals of Houston. Deasy spoke at the DeWitt World Petrochemical Review, March 30-31 in Houston.
``By 2009, Middle Eastern polyethylene can be delivered for less than the North American and Western European cost,'' Deasy said. ``It looks like a bit of a scary story, but production on the [Houston] Ship Channel isn't going to rust away.
``It can still thrive. In 2009, there will still be more capacity in the Americas than in any other region of the world,'' he added.
Deasy said he expects the North American PE operating rate to average 90-95 percent between 2005 and 2009, with demand growth averaging just under 4 percent each year.
CMAI's Vafiadis characterized the switch as ``a changing of the guard'' in which the U.S. and Canada are relinquishing their role of PE production and demand leader.''
``In the new guard, China will be the key [PE] growth market, the Mideast will dominate new capacity, and investment in North American capacity will come to a virtual standstill,'' he said.
For PET, vast amounts of excess Asian capacity will result in North America becoming a net importer by 2008, in spite of recent tariffs that have slowed the growth of imported Asian resin from some countries, according to CMAI's Willett.
``Asia will be a continual export threat,'' he said, adding that domestic growth ``isn't a problem'' and should average 6 percent annually through 2009.
Willett also expects North American PET operating rates to drop below 90 percent by 2006. In end markets, growth in bottled water and sports drinks should stay in the double-digit range, while 12-ounce bottles will continue to increase their presence in carbonated soft drinks.
High raw material prices for crude oil and natural gas are a major culprit in this sea change. Natural gas - used in 70 percent of North American PE production - sold for no higher than $2.50 per million Btus for most of the 1990s, but now is expected to stay in the $5-$7 range through 2009.
Deasy recalled a lower-priced era when ``if [resin makers] had two nickels to rub together, they'd say `Go build a new plant in Texas.' ''
Capacity growth in North America now is limited to ``capacity creep'' of about 400 million pounds annually, as PE makers work to wring more production out of existing plants. The days of major North American PE expansions are receding into the past.
``High energy prices have hit North America, and that will curtail the ability of North American producers to compete globally in the future,'' CMAI's Vafiadis said, adding that, at current cost levels, Middle Eastern PE already can be sold in North America for almost 40 percent less than the total manufactured and delivered cost of North American PE.
The picture's a little different in PET, where capacity expansions can be accomplished at a lower price. North America capacity is expected to grow by about 1.1 billion pounds in the next two or three years.
In the short term, DeWitt analyst Pat Duke predicted that 2005 North American PE demand will rebound after a slow first quarter.
``At the end of 2004, there was a hoarding phenomenon [among PE buyers], then in the first quarter, there was uncertainty over the effect of crude oil,'' Duke said. ``At some point, excess stock in the system will be depleted and buyers will be back buying at their normal rate, but [the North American market] lost three or four months of growth it was looking for.''
Duke also questioned the pace of some of the major expansion projects set to come onstream in the Middle East.
``The timing of some of those projects may change a little because of the geopolitical aspects of the region,'' he said.