``Markets close to the home market - like siding, windows, doors, fencing and decking - are hurting,'' said one veteran PVC executive. ``Most of our customers who work in home building aren't expecting a comeback until the second half of 2008 or early 2009.
``Pipe producers are controlling production tightly and everybody's running lean with inventory. The flexible PVC market has been very steady, since it's more a reflection of the consumer and the general economy.''
``We don't think the housing slump will be long-term,'' added Steve Brien, chlor-alkali and vinyls business director at CMAI. ``It should hit bottom this year or early next year. Then PVC construction demand should start to rise in mid-2008.''
Regional PVC makers don't seem to be intimidated by the slump, as witnessed by plans from Shintech Inc., Georgia Gulf Corp. and Formosa Plastics Corp. USA to boost capacity by a total of 1.5 billion pounds in 2008. Houston-based Shintech's output will be at a new plant in Iberville, La.
This new capacity and a soft construction field should cause North American prices to slip in 2007 and 2008 before bottoming out in 2009, according to Brien. Predictably, PVC makers don't share this outlook.
``With new capacity on the horizon, customers will look at that and expect prices to fall in `08,'' Brien said. ``But we're out there trying to tell our customers that it's the opposite and they need to understand that.
``Margins on PVC are at historic lows, as low as 2001, when there was a recessionary atmosphere,'' he added. ``Prices are high but we also have extremely high costs. Even though there will be new capacity on board, prices can't fall unless ethylene falls, and for that to happen, we're going to have cost relief on oil. If you're planning your business on the idea that resin prices will fall off and that will improve your margin, I think that's a mistake. Prices are unlikely to fall very much. Margins are likely to be squeezed until ethylene comes down.''
True to form, average North American PVC selling prices were up an average of 4 cents per pound in the first half of 2007. Inventories now also are lower than they were a year ago when the market endured a late-year price drop. As a result, PVC users may need to buy when they didn't a year ago.
Exports also helped out the PVC sector in the first seven months of 2007. With exports up 27 percent, a domestic drop of 6 percent was reduced to an overall market sales drop of less than 4 percent.
In the long run, Brien said North American PVC resin growth is expected to slow, clocking in a little below gross domestic product and continuously driven by the construction industry. Operating rates currently at 90 percent should drop in 2008 and 2009 as new supply comes on line.
Much like the scenario for PVC, makers of PET are ramping up new capacity. Eastman Chemical Co. and DAK Americas Inc. have added more than 1.2 billion pounds of capacity since late 2006, and announced new plants from Bangkok, Thailand-based Indorama Polymers Public Co. Ltd. and M&G Group of Tortona, Italy, will be larger still.
Indorama's new plant in Decatur, Ala., will be a 950 million-pound-capacity facility, while M&G's 2009 project - at an undisclosed U.S. site - will be the world's largest PET works with almost 1.8 billion pounds of capacity.
``We're investing in the future because we believe we can make money in PET,'' said Mark Adlam, commercial vice president at M&G's U.S. headquarters in Houston. ``We're glad to be in this industry.''
``You have to remember that PET has a historical growth rate of 6-7 percent, so projecting as you go forward means you need another 700 million to 800 million pounds per year,'' he added. ``It would be nice in an ideal world to exactly meet that demand every year, but that doesn't happen.''
In North and South America, demand growth should average 7-8 percent from 2007-12, according to Chase Willett, CMAI director of polyester and polyester raw materials.
``An increase in carbonated soft drinks and water in Latin America will offset a slowing market in the U.S. and Canada,'' Willett said. ``North America is firing on one growth cylinder and that's bottled water.''
Globally, the market is awash in excess capacity totaling almost 9 billion pounds. Global operating rates will be 78-82 percent until 2012, Willett said. In North America, operating rates won't hit 90 percent until that point.
In another parallel to PVC, new PET capacity might not necessarily mean lower prices for buyers.
``The impact of new capacity will extend what we've already seen,'' said Mike Dewsbury. Dewsbury, a longtime executive with PET maker Wellman Inc., joined RTI as a PET market analyst earlier this year. ``Margins are very thin and new capacity won't change that, so prices have no place to go.''
``When you look at margins, they're as bad as I can remember,'' added M&G's Adlam. ``When new capacity comes on, prices are unlikely to go lower. We're high in price, historically, but low in margin.''
In 2007, PET makers won increases averaging 6 cents per pound in the first half of the year before seeing a 2 cent drop in July.
Dewsbury cited a shortage of monoethylene glycol feedstock as the biggest topic facing the PET market. The MEG market already was tight before a recent outage at a plant operated by Saudi Basic Industries Corp. (Sabic) in Al Jubail, Saudi Arabia, knocked out about 5 percent of global supply. Announced price increases for MEG - which can account for about one-third of PET costs - now are as high as 20 percent.
``That [shortage] is going to show up someplace and keep prices up,'' Dewsbury explained. ``That should continue the rest of this year and into 2008, but [MEG] should be available after that.''
The quest for ever-thinner PET bottles also is affecting resin usage, but Adlam said such ``light-weighting'' traditionally has been healthy for PET demand as it stabilizes or reduces the product's ultimate price on store shelves.
At RTI, Dewsbury said that making lighter-weight bottles ``is good on the environmental side and good for the PET business in the long-term.'' CMAI's Willett pointed out that bottle weights for bottled water in North America can be less half of those in other regions.
M&G has explained its major investment by saying the firm expects imports of foreign PET into North America - which account for 10-15 percent of demand - to decline over time as each global region becomes more self-sufficient and competitive. Evidence of that trend came in 2007, as PET imports from Asia were down 14 percent through May.
Traditional market leader Eastman already has taken steps in that direction, by selling off plants in Europe and South America while expanding in the U.S.
``Eastman has been the leader in the industry for long time,'' said RTI's Dewsbury. ``They were ahead of the game in making PET, but now they say it's low margin and doesn't justify the expense in all areas. It's a good business decision.''
Troubled times continued for the PS market in 2007, with U.S./Canadian domestic sales down almost 5 percent through July. A gain of 7 percent in exports lowered the loss to just over 4 percent, but the sector remains plagued by high prices for benzene, the key feedstock used to make styrene monomer.
Declining profitability has taken its toll on the ranks of PS makers. Since March, Dow has joined forces with Chevron Phillips Chemical Co. LLC, and Nova has linked with Ineos Group. This flurry of activity has left Houston-based Total Petrochemicals USA Inc. as the region's only stand-alone PS maker.
In spite of these challenges, some executives remain optimistic.
``Demand has been off, but it's come back in the last few months,'' said Todd Jagmin, Total's national sales manager.
``There was some inventory destocking in January and February because of excess hurricane inventory builtup at the end of 2006. That won't be the same this year, so we should make up some ground.''
In recent years, the market ``has really suffered with price volatility and the relatively high price of benzene,'' Jagmin added.
Those factors ``have caused some customers to convert to paper or to PET or polypropylene,'' he said. ``We've lost some business that's been tough to get back.''
The only good news for North American PS, according to CMAI styrenics director Peter Feng, is that sales in its core packaging segment actually rose 1 percent through July. That gain, however, was offset by losses of 27 percent in building and construction and 23 percent in electrical/electronics.
``New applications aren't even considering polystyrene in technology and fashion,'' Feng said.
``The world in polystyrene is starting to change,'' he added. ``Producers will be bigger and more integrated as they come out of it. I don't believe we'll see wholesale shutdown of assets, but supply will continue to be on the long side. Benzene won't go much lower unless crude oil significantly drops.''
Contract prices for benzene peaked at $4.20 earlier this year and remained above $3.20 in August, keeping it well above historical averages. About 5 billion pounds of benzene supply has been off-line since late 2005 because of operating problems.
Benzene supply also has been diverted from PS since toluene, a benzene feedstock, has found higher value as a gasoline additive, leaving less of it available for benzene production.
As a result of these raw material issues, Feng said that he expects global PS operating rates to remain under 76 percent from 2007-12.
At Total, Jagmin said that raw material factors ``make it more important to work on the developmental side'' of PS.
``We need to make the material more price-competitive by blending it with other material or by using fillers,'' he said. ``We need to do everything we can to make the end product more competitive.''
One advantage for Total, Jagmin added, is that it consolidated several smaller plants almost 20 years ago into one large, cost-efficient facility in Cargill, La. That site still ranks as the world's largest PS works, with annual capacity of 1.7 billion pounds.
Looking forward, Jagmin said PS market sales should end the year only 4 percent down, with sales roughly flat in 2008 and 2009, and slight increases beginning in 2010. North American operating rates are expected to be in the 80s.
Even with the auto market slowing down, and sales of digital music eroding sales of CDs, the North American PC market is set to grow in 2007. But the size of that growth remains up in the air.
Regional sales for Bayer MaterialScience LLC of Pittsburgh are up 6-7 percent, according to Roger Rumer, PC business director. RTI's market analyst, Greg Smith, has a lower estimate, of 1-2 percent growth, for the overall market.
``North America is going into its strong season right now, with pre-Christmas buildup of strong CD releases for the end of the year,'' said Rumer. ``Auto build numbers are down, but we've still been successful. We've had some share shift vs. competitors [in automotive] and we're getting more pounds per vehicle in lighting assemblies, which are getting bigger on trucks and [sport utility vehicles]. Growth in the overall market actually has surprised us a bit this year.''
North American car and truck builds were down more than 3 percent through Sept. 22, according to Automotive News, a Plastics News sister publication. That equates to more than 400,000 fewer vehicles rolling off assembly lines.
Global growth rates for PC should average 5-6 percent in 2006-08, Smith said, adding that the ``real growth'' in PC continues to be seen in Asia.
``DVDs aren't going to have nearly the same growth moving forward,'' he said. ``There are more ways to download digitally and that's probably going to increase in future. You also can fit more data on single disc.''
Rumer acknowledged there's pressure in some markets, but he added that unexpected opportunities have popped up elsewhere.
``Five or six years ago, you would have thought that with everything going to flat-screen computers instead of 20-inch monitors that used 4 kilos [almost 9 pounds] of PC/ABS, there would have been a business loss,'' he said. ``But flat-screen TVs came along and they've been a real growth opportunity.''