North American polyethylene and polypropylene growth now can be measured in steady steps, instead of leaps and bounds.
Annual demand growth in North America should average 3.4 percent between 2006 and 2011, according to Nick Vafiadis, PE director for Chemical Market Associates Inc. consulting firm in Houston. CMAI PP director Bob Dennett anticipates a similar annual growth rate for U.S./Canadian PP demand between 2005 and 2010.
Vafiadis and Dennett dissected the outlook for each resin at their firm's Plastics Processors Conference, held Aug. 16-17 in Boston.
Although demand growth will continue, it won't be high enough - and raw material prices will be too costly - for resin makers to add significant PE or PP capacity in North America. A Mexican PE project from Pemex Petroquímica SA will add about 1.7 billion pounds, but Vafiadis described that effort as ``relatively minor'' in the context of the overall market.
Instead, Vafiadis said he anticipates that the region will be a net importer of PE by 2010. The Saudi Arabian cost advantage on delivered PE to North America is 37 percent, he said, but that nation's resin makers don't want to use their low price to buy into the North American market, since they're already in Asia and Europe.
North American PE growth at 3.4 percent will be ahead of Western Europe at 2.5 percent, but still will trail the global average of 5.1 percent annually between 2006 and 2011. Growth in northeast Asia - which CMAI said comprises mainland China, Hong Kong, Taiwan, South Korea and Japan - and on the Indian subcontinent will be 6.9 percent and 8.5 percent, respectively.
In that period, the U.S./Canadian PE market will be led by pipe and extrusion, with expected annual growth of 4.3 percent.
``Pipe has been going crazy this year,'' said Vafiadis. ``We don't expect it to continue at that rate, but it should do pretty well for the next few years.''
The much smaller rotomolding segment will have a similar growth rate of 4.1 percent in CMAI's forecast period, while the film and sheet market - tops in PE volume - will check in at 2.6 percent. Wire and cable will lag the field at 2.1 percent.
The surge in PE imports seen in North America after last fall's hurricanes could prove to be both a blip and a trend, he said.
``An arbitrage window opened in the fourth quarter of 2005 because of the hurricanes,'' he said. ``We saw big import numbers from November through January. Imports have declined since then, but the trend will be toward increasing levels of imports.''
Vafiadis added that he expects to see some consolidation among smaller producers of PE remaining in North America, where the five largest producers account for about 80 percent of capacity.
On the pricing front, Vafiadis said North American PE prices will remain historically high, peaking in 2006-07 and declining through 2011.
``The decline in the price delta between North America and other regions of the world is good news for North American processors,'' he said. ``Prices will equalize and the region will be on a more level playing field. North America still will have to compete on labor costs, but the resin component will come down over time.''
Over in PP, Dennett said that although the material ``is no longer a cheap resin used to move propylene monomer,'' it will continue to grow.
``The auto industry loves polypropylene because of its weight savings vs. metal, high-heat resistance, recyclability and ability to be compounded,'' he said.
On-purpose production of propylene - as opposed to it being a byproduct of gasoline or ethylene production - is becoming more important, since propylene use is growing faster than ethylene use and gasoline consumption.
As a result, Dennett said producers are looking into making propylene monomer through a pair of chemical processes - dehydrogenation or metathesis. Two U.S. plants already are using the metathesis process to make propylene, he said.
Between 2006 and 2011, U.S./Canadian PP demand will be spearheaded by injection molding and film and sheet use, each of which should grow 4.7 percent per year. The smaller blow molding market will move ahead 5.2 percent annually, Dennett said.
But total growth will be held back by a 1.6 percent annual rate in the behemoth fibers market, where Dennett said demand is down partially as a result of less carpet being used in newer homes in favor of materials such as hardwood and tile.
The North American region's 3.4 percent overall rate also will trail the global annual rate of 5.7 percent in the CMAI forecast period. The region's only new capacity could come from the restart of a line operated by Basell Polyolefins in Bayport, Texas, but Dennett said that restart isn't guaranteed.
Imports of resin and finished parts are less a concern in PP than they are in PE, according to Dennett. Saudi PP currently ships at a 12 percent penalty when delivered to North America, he said, as raw-material advantages are eaten up by logistics costs.
``Imported polypropylene only will enter North America if the region doesn't have enough material or if operating rates get too high,'' Dennett said.
Production costs for a standard injection molded container currently are 9 cents per unit in the U.S., compared with 10 cents in China and 12 cents in the Middle East, Dennett added. The discrepancy is created partially by the inability to stack most such containers well in ocean transit, he said.
In pricing, Dennett expects that North American PP prices will peak in 2007 and start to trail down by the end of the year.