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September 10, 2007 02:00 AM

Consultant weighs in on commodity plastics

Frank Esposito
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    The near future for commodity plastics holds more capacity in the Middle East, more biopolymers everywhere and no relief on prices for crude oil and natural gas until after 2008.

    Industry consultant Howard Rappaport wrestled with these topics at Chemical Market Associates Inc.'s Plastics Processors Conference East, held Aug. 28 in New York.

    ``Recently, resin exports from North America have been up because crude oil prices have been high and natural gas prices have been level,'' said Rappaport, who serves as global plastics practice leader for Houston-based CMAI. ``But longer term, we'll see softer market conditions globally because of new global resin capacity.''

    The processing market has been affected by a slowing U.S. economy. U.S. gross domestic product is set to grow only 2 percent this year, the slowest growth rate since 2002 and a drop of almost a full percentage point from 2006. Globally, GDP is expected to grow 3-3.5 percent in 2007, Rappaport said.

    Rappaport cited projections from Purvin & Gertz Inc., a Houston-based energy consulting firm. Purvin & Gertz expects crude oil prices, which were around $66 per barrel in 2006, to peak near $70 in 2008 and then decline to less than $58 by 2011.

    In natural gas, Purvin & Gertz anticipates that unit prices - around $7 in 2006 - will peak close to $8 in 2008, before gradually receding. The natural gas decline won't match that of oil, however, as prices will remain above $7.50 in 2011.

    The Middle East also continues to gain prominence because of its access to low-cost feedstocks. The region currently produces less than 35 billion pounds of ethylene feedstock annually, but that number is expected to approach 80 billion by 2013. A portion of that output will be used to produce polyethylene, Rappaport said.

    In addition to raw materials, the Middle East wants to grow its plastic processing abilities.

    A ``plastics cluster'' being planned in Abu Dhabi, part of the United Arab Emirates, expects to process more than 2 billion pounds of plastic annually by 2015. Sumitomo Chemical Co. Ltd. of Tokyo and Saudi Aramco of Dhahran, Saudi Arabia, also are investing in the Rabigh Conversion Industrial Park, a massive plastic processing hub to be located in Rabigh, Saudi Arabia.

    In the biopolymers field, Rappaport said that the amount of biodegradable packaging used worldwide was less than 90 million pounds in 2006 but is expected to be almost 270 million pounds by 2011. In 2006, almost 45 million pounds of materials were used for biodegradable packaging in Europe, while almost 35 million pounds were consumed in North America.

    This surge will increase demand for polylactic acid resin, which currently makes up more than 40 percent of biopolymer production. PLA production could approach 450 million pounds by 2011, he said.

    Rappaport also pointed out that although very little crude oil is used to make PE bags, a single barrel could produce 34,000 of them. Most PE bags made in North America, however, are derived from natural gas, not crude oil.

    ``Polyethylene bags consume far less energy to produce, ship and store that paper bags,'' he said.

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