While strong global growth is expected to continue, the plastics and chemicals market might have to work harder for that trend to continue into the future.
``We're in a growth business,'' said ExxonMobil Chemical Co.'s Sherman Glass Jr. ``The petrochemicals industry is growing 2-3 percent above world [gross domestic product] rates, but we must prepare for changes in feedstock availability and customer mix.''
Glass is senior vice president of basic chemicals, intermediates and synthetics for Houston-based ExxonMobil Chemical. The firm - one of the world's largest producers of polyethylene and ethylene feedstock - rang up a profit of more than $4 billion on sales of $49 billion in 2006.
Glass, a 35-year Exxon veteran, spoke at Chemical Market Associates Inc.'s World Petrochemical Conference, held March 21-22 in Houston.
``Feedstocks can account for 50 percent of our costs,'' he said. ``So we're using heavier feeds, which are lower quality but lower cost. We're using liquid and gas feedstocks from diverse sources so we can meet needs in any economic environment. It's difficult to overstate how important feedstock flexibility is.''
ExxonMobil also is working to improve the energy efficiency of the steam crackers it uses to make many petrochemical products. Glass said the firm's crackers are using more cogenerated power and reducing greenhouse gas emissions by 23.1 billion pounds - the equivalent of taking 2 million cars off the road.
The petrochemical market also will be challenged by moving from a period of tight inventory to one with a longer inventory status, according to CMAI President Gary Adams.
``We're in the beginning of a transition period,'' Adams said at the conference. ``Demand is moderate but improving, and inventories will be replenished soon. As a result, margins are showing cost strain and pricing strength is declining.''
Adams added that the global petrochemical market is undergoing a geographic change, one that will leave the Americas and Europe with only 42 percent of worldwide plastics and chemicals capacity by 2015. In 1990, those regions had a combined share of 74 percent.
``It's the best of times for developing world and [Persian Gulf] producers, but it's challenging for producers in North America and Western Europe and their customers,'' he said. ``Production will follow the most cost-effective route to market.''
This situation could become a threat if the flow of finished goods from Asia overcomes growth in North America and Western Europe, Adams said.
CMAI chief economist Arved Teleki estimated there's 75 percent probability that the global economy will grow at a rate of more than 3 percent in 2007.
``Energy prices remain high, even after a recent correction, and extreme volatility continues,'' Teleki said. ``Subsiding international tensions could act as a tax cut by reducing energy costs. Residential housing starts also are a major issue, but they're a relatively small part of GDP.''
Global economic growth also means that ``we're adding the equivalent of an Italy, France or Germany to the world year after year,'' he added.
Longer-term, Teleki anticipates average global GDP growth of between 3.4 and 3.7 percent in 2007-08, slowing to between 3.1 and 3.3 percent from 2009-11.