Although 2008 looks to be a decent year for the global polyethylene market, the industry is at or near its cyclical peak and will trail down in the near future.
Global PE capacity growth should be 4.9 percent between 2007 and 2012, with a lower growth rate of 1.5 percent in North America during that period, Nick Vafiadis of Chemical Market Associates Inc. said at his firm's World Petrochemical Conference, March 26-27 in Houston.
Capacity growth in Northeast Asia, including China, will be much higher at 7.8 percent, while Western Europe will be slightly ahead of North America with a 2.1 percent growth rate. The 2007 world PE market totaled more than 170 billion pounds, with 44 percent in high density PE, 29 percent in linear low density PE and 27 percent in LDPE, said Vafiadis, polyolefins business director with Houston-based CMAI.
``Demand and capacity growth are concentrated in developing regions because of low cost and strength of demand,'' he explained. ``This applies to [PE] converters as well.''
Massive amounts of new capacity - including more than 20 billion pounds in the Middle East between 2008 and 2012 - will push global operating rates under 85 percent in 2009 and 2010, according to Vafiadis, who said the upcoming levels of excess PE on the global market are ``unprecedented.''
In 2008 alone, the Middle East will see new production of 1.5 billion pounds of LDPE, 3.6 billion pounds of LLDPE and 4.8 billion pounds of HDPE.
The new Middle Eastern material also could have an impact on North American PE exports, Vafiadis said. Exports from North America were at or near record levels in 2007, but should trail off by the end of 2008 as new Middle Eastern capacity meets global needs.
Most of the new Middle Eastern capacity is being opened by Saudi Basic Industries Corp. and Iran National Petrochemical Co. And it's also reasonable to expect some of the new material to land in the United States.
``This new Middle Eastern polyethylene must find a new home, since China won't be able to absorb all of it,'' Vafiadis said. ``Sabic has been stepping up its efforts to market material in North and South America, so imports should ramp up at a significant rate at the end of 2008 and early 2009.''
Vafiadis added that although most imported PE would arrive in North America in super sacks, Sabic has been encountering ``less than expected resistance'' from potential North American PE customers on that scenario.
At DeWitt & Co.'s World Petrochemical Conference - held March 26-27 in Houston - DeWitt President Earl Armstrong said that some Middle Eastern projects still might be affected by construction or market-based delays.
``A million tons of ethylene was supposed to come out of Iran this year, but there's no market for it,'' he said. ``You have to make a judgment on what you hear and on what makes sense.''
Armstrong agreed that PE imports will rise in North America in 2008 as exports cool off.
``2008 will be fairly strong [export] year because material isn't available elsewhere in the world yet,'' he said. ``But eventually we're going to see exports disappear as they did in the 1990s - it's going to feel very similar.''
China also is becoming more self-sufficient in PE but remains a major importer of the resin. By 2012, China will be sourcing only 40 percent of its PE needs from outside the country, according to Vafiadis. That's a big drop from the 60 percent import rate it had in 2002.
Between 2009 and 2011, China is expected to open almost 14 billion pounds of new PE capacity. The country also is expected to remain a major exporter of PE bags and other finished PE goods. PE bag exports from China were flat in 2007 because of relatively low resin prices in North America, but more normal growth rates should return, Vafiadis said.
The PE market in Western Europe has provided a bit of a surprise with plans to add more than two billion pounds of new capacity from 2008-12. This new capacity could lead to older capacity being shut down, according to Vafiadis.
The PE market also should be concerned about numerous potential bans of PE bags that have been popping up around the world, he added
``The global assault on plastic bags is important because film and sheet generate 50 percent of global PE demand,'' Vafiadis said. ``The [PE] industry has been somewhat ineffective in fighting this trend and it seems to be growing.''
Wal-Mart Stores Inc. has done some good educational work in this area, but Vafiadis said the fight isn't over.
``The public needs to see facts, because perception often rules the day,'' he said.
