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March 13, 2006 01:00 AM

Mere fear of hurricane season may cause resin demand flux

Frank Esposito
Senior Staff Reporter
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    High energy costs haven't had the expected impact on the North American and global economies - but concern over a repeat of last year's nightmare hurricanes could have an even bigger effect this year.

    That's the outlook from Steve Zinger, global olefins director for Chemical Market Associates Inc., a consulting firm in Houston. Zinger spoke at the Plastics News Executive Forum, held March 6-8 in Tampa.

    ``Even if there's no strong hurricane season in 2006, you have to look for indirect impact through a [resin] demand surge in late summer,'' Zinger said. ``Processors could build inventories ahead of potential hurricanes and then deplete inventories at the end of the year if there's no bad weather. That could add to the volatility of the [resin] market.''

    In the broader picture, the plastics and petrochemicals market is coming to grips with a new market reality in which capacity growth is focused on the Middle East and higher prices for oil and natural gas might be here to stay. However, the good news for plastics processors is that although those prices are expected to remain high compared with historic levels, CMAI anticipates they will drop from their current marks.

    Natural gas - used to make 70 percent of North American polyethylene - should remain above $5 per million Btu through the rest of the decade but may slide a bit from its March 8 cash price of $6.40. CMAI foresees crude oil prices eventually settling between $40 and $45 per barrel for the next five years as new supply additions are tapped worldwide. Cash prices for west Texas intermediate crude were just above $60 on March 8.

    ``World economies are a lot stronger than most economists thought they would be,'' Zinger said. ``And they'll be even stronger if energy prices fall.

    ``But for oil prices to come down to reasonable levels, the industry has to believe there's spare capacity.''

    Globally and in the U.S., CMAI expects annual economic growth of 3-4 percent through 2009.

    The impact of Hurricanes Katrina and Rita still is being assessed six months after the first storm hit the Louisiana coast. Some 10 percent of U.S. petrochemical capacity remained out of commission last month. At the height of the damage - after Rita hit Texas in late September - half of that capacity was out.

    Unrelated explosions and outages at petrochemical plants run by Innovene plc in Alvin, Texas, and by Formosa Plastics Corp. USA in Point Comfort, Texas, also tightened the market, sending prices for plastic feedstocks ethylene, propylene, styrene and chlorine to record highs.

    Moving ahead, Zinger said major expansions in the Middle East - where natural gas costs are a mere 75 cents per million Btu - will give that region 15 percent of world capacity by 2010. North America and Western Europe will retain market shares of 20-30 percent.

    But price imbalances will cause North America to become a net importer of ethylene and derivatives - such as PE - by 2009, Zinger predicted.

    ``The Mideast will have to export because they don't have enough domestic demand,'' Zinger said. ``And some of that material will end up here.''

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