The North American polypropylene market is going on a crash diet, while the engineering resins field just wants to eat healthier.
That was the menu-making advice from resin and compound veterans Joe Congdon and Craig Nikrant, who spoke at the Plastics News Executive Forum, held March 2-4 in Summerlin.
The picture for PP isn't pretty, with Congdon saying the global market is heading into “one of its worst periods of oversupply.”
Even with PP demand down about 9 percent in the U.S. for all of 2008, other parts of the world — mainly the Middle East and China — are in a major building mode. Global expansions will add almost 9 billion pounds of PP capacity in 2008-09 and about 11 billion pounds in 2010, said Congdon, who spent almost 20 years at global PP leader Basell Polyolefins before joining Houston-based consulting firm Townsend Solutions last year. Congdon now serves as Townsend's global PP consulting director.
Congdon expressed concern that even growing nations such as China (flat) and India (down 3 percent) had disappointing PP demand years in 2008. The impact of all this new capacity — including more than 2 billion pounds being added by Reliance Industries in India — will lower global PP operating rates to 83 percent in 2010 before they start to recover, Congdon said.
He cited rampant oil speculation as a reason for PP prices shooting sky-high in the first half of 2008. “The [oil] futures market was 20 times bigger than the physical market,” Congdon explained. “And that worsened the situation in polypropylene.”
In North America, processors already have whittled their PP inventories to the bone, dropping from an average of 16 days of inventory on hand in August and September to an average of 16 in December and January. The rest of 2009 may provide a bumpy ride, according to Congdon, with regional PP demand expected to be down 3 percent.
The sustained decline may lead to more consolidation among North American PP suppliers, who already have shuttered more than 2 billion pounds of capacity since early 2007.
Congdon dispersed some of the gloom by adding that demand recovery should begin in the second half of 2009, even though demand for the full year will remain negative.
“Polypropylene is a leading economic indicator and will start to grow first,” he said. “And the U.S. still is one of the most desirable markets in the world.”
At PolyOne Corp. — the Avon Lake, Ohio-based firm that ranks as North America's largest compounder — Nikrant sees potential in new materials, even in the midst of tough economic times.
“The widespread drop in demand has been very painful for us,” said Nikrant, the firm's vice president and general manager of specialty engineered materials. “Auto and construction are down, and that's tough for PolyOne, since we're a big producer of PVC compounds.”
In the current climate, a clear strategy is more important than ever for plastics processors, he added.
“There are new opportunities, but the industry also is facing harsh realities,” Nikrant said. “One way to go is to play the volume game. That has rewards but also risk. It's a major decision point for plastics materials companies and processors.”
Increased regulation “can be frustrating and challenging, but it also can create new opportunities,” he added. At PolyOne, the firm has seen such opportunities in replacing PVC with thermoplastic elastomers in medical tubing — a move that has eliminated phthalates and plasticizers.
Nikrant singled out three recently introduced materials with sizable market potential:
* Infuse-brand olefinic block copolymers made by Dow Chemical Co.
* Tritan-brand copolyester from Eastman Chemical Co.
* New grades of low-viscosity polyphnylene sulfide from Celanese Corp.'s Ticona unit.
Each of these products “address unmet market needs,” according to Nikrant.
New applications “may not be bumpers on cars or appliance knobs, but there are still plenty of opportunities out there,” he said.