Contrary to what you may have heard, Disney is not working on a movie titled Honey, They Shrunk the Resin Industry.
Yes, capacities are down with some recent plant shutdowns, particularly in the polypropylene and polystyrene markets. PP has garnered attention in recent weeks as Flint Hills Resources and Ineos Group have announced plans to shutter production in Texas. Those moves will push the amount of PP capacity removed from the region since early 2007 above the 2 billion-pound mark. That's more than 10 percent of capacity.
In PS, the moves also have been stark, with more than 1 billion pounds about 17 percent of capacity vanishing since early 2007. PS is stuck in a box where it's still a great resin for a lot of food service and packaging uses, but has lost many other markets as a result of higher feedstock costs and improvements made to competing materials, such as PP and high density polyethylene.
But in the case of PP and of HDPE and linear low density PE as well, it's important to look at how much those markets have grown in the last decade. Between 1998 and 2007, U.S./Canadian LLDPE production soared almost 90 percent. Production of HDPE and PP (including Mexico) each were up 40 percent. Essentially, North American resin makers churned out an additional 6 billion pounds of LLDPE, 5 billion pounds of HDPE and 5.5 billion pounds of PP in 2007 that didn't exist in 1998.
But it's misleading to think that the resin market will contract as badly as global stock markets. We're still talking about a multitude of applications used in everyday life.
Even in a market as desultory as the current one, resin makers managed to sell 20 million additional pounds of HDPE into nonfood packaging film and 10 million more pounds of LDPE into nonpackaging film in the first eight months of 2008. PP makers also sent 30 million additional pounds of material into injection molded cups and containers. North Americans apparently still get thirsty and need a place to stash their leftovers.
What we might see are older plants or individual production lines being decommissioned and taken out of the market. A number of lines that launched in the late 1960s and early 1970s are approaching the limits of their use. The burden then will fall to the newer arrivals of the 1980s and 1990s. Resin makers already have shown a knack for coaxing production well beyond nameplate capacity through an array of mechanical wizardry. Chances are they'll continue to do the same.
Shrinking resin demand in North America and throughout the world for the next year or two (or three) also should delay a number of major PE/PP projects in the Middle East, or at least discourage them from running at high rates.
So weep not for North American resin makers. The stronger ones will ride out the cycle, possibly by cutting more expensive production or forming joint ventures, while those less fortunate will fade away. But resin demand eventually will recover.
Frank Esposito is an Akron, Ohio-based Plastics News senior reporter.