The approach to all of the new polyolefin capacity set to come on line in the Middle East seems to be: Hurry up and wait.
That was the essence of statements made by industry veterans Chris Hogan and Phil Townsend at TEMPI 08, held June 9-10 in Las Vegas and hosted by Townsend Polymer Services & Information.
While there's no question that the Middle East will be deluged with new resin — by Hogan's count, more than 20 billion pounds of new polyethylene and polypropylene capacity by the first half of 2009 — there's some uncertainty as to how and when that material might impact North American and Chinese markets.
The limited number of new polyolefin crackers coming on stream in North America and Europe will increase the strength of the Mideast material, said Hogan, executive vice president of the polymers business unit of Hong Kong-based Noble Group Ltd.'s Chemical Division.
But Hogan pointed out there might be some bumps in the road, particularly in the form of questions about availability of natural gas in the Middle East and of shipping congestion there.
``The cost of gas extraction is going up, and the congestion of ports like Jeddah [Saudi Arabia] is a nightmare,'' he said. ``Freight rates for the new [resin] plants won't be as favorable because of container issues. Container costs are much higher than when these plants were originally planned.''
Middle East resin makers, particularly in Saudi Arabia and Iran, ``are looking at people shortages and problems with construction and contractors. Some contractors already aren't taking any new work.''
Townsend, owner of the Houston-based consulting firm hosting the event, described the new Mideast resin as ``a 600-pound gorilla coming at you.''
``The only way for this material to find a home is to go a lot of places,'' he said. ``Government in those countries set low feedstock costs in the 1970s, and that low-priced ethane brought in a lot of industries. It doesn't matter if oil stays high; government policy isn't going to change.''
Much of the new polyolefin production is expected to end up in China and other parts of Asia, but if demand there is slower than expected, the material could be routed to North America and Europe.
``The new polymer capacity may have been predicated on stronger export growth,'' Hogan said. ``If it ends up in North America and Europe, nonintegrated capacity in those regions will have to shut down.''
``The Chinese will not be the only solution to the resin problem,'' Townsend added. ``Buying GE Plastics has given [Saudi Basic Industries Corp. of Riyadh, Saudi Arabia] the ability to bring in resin to North America. The deal between Dow [Chemical Co.] and Kuwait has also put a mechanism in place to bring material into the market. The inevitable math is that some North American capacity will be shut down.''
Other potential concerns for Middle East resin makers include a lack of skilled labor and the need to build up a domestic processing market to help with the region's unemployment rates, according to Hogan. Another wild card could be the reaction other exporters have to the wave of new resin.
``When the new resin comes on, the Mideast will have the largest import share in China and shares from other Asian countries will decline,'' Hogan said. ``Prices could decline sharply if the Koreans fight for market share. Overall, the [resin] market will be tough from 2009-11 but will be better in 2012.''
Townsend also pointed out logistical issues which could complicate the Mideast resin making its way to North America — including the need for at least 625,000 shipping containers to move the new resin around the world by 2011.
``The cost of steel for those containers has more than tripled,'' he said. ``And the shipping companies don't want to ship the containers back [to Asia] empty. They'll sell them rather than ship them back empty.''
The North American preference for rail-car resin delivery vs. 55-pound supersacks or ``bag in a box'' methods preferred elsewhere in the world also remains an issue.
``We need new logistics solutions,'' Townsend said. ``Current resin shipping has too much high cost, waste and inefficiency.''
Port security also may be an issue, particularly if the U.S. maintains its post-9-11 mentality.
``There's no way the world will allow hundreds of thousands of new containers to come from Saudi Arabia or anywhere else without being inspected,'' Townsend added. ``The U.S. doesn't know how to detect nuclear content as it is. If it was grain or feed, it would be the same problem. Existing devices can't detect uranium and only 3 percent of shipments are inspected at all.''