The global economic slowdown has brought change to the polyethylene market.
“Change isn't two fiscal quarters away, it's actually arrived,” said Chemical Market Associates Inc.'s polyolefins director, Nick Vafiadis.
“The economic slowdown and massive wave of new capacity has suppressed demand and limited near-term profit,” he said at his firm's World Petrochemical Conference, held March 25-26 in Houston. “That market uncertainty was brought about by unprecedented price volatility, oversupply and slack demand.”
Vafiadis contends that 2008 was “the bottom” for the global PE field. That must come as a relief to PE makers in North America, where linear low density PE demand fell more than 7 percent in 2008, with high density PE down more than 8 percent and low density PE demand tumbling almost 11 percent. Those drops added up to more than 3 billion pounds of regional PE demand vanishing between 2007 and 2008.
The slowdown also has taken out almost 19 billion pounds of global PE demand that had been expected by 2013, according to a CMAI projection. In the U.S., domestic PE demand is expected to bottom out this year before beginning a slow recovery in 2010, Vafiadis said.
Even the mighty Chinese market saw PE demand slide by 5 percent in 2008, but the larger U.S. slide meant that China replaced the U.S. as the world's largest consumer of PE for the first time.
Lower PE prices, driven by weak demand and low energy costs, potentially can stimulate demand and entice customers back to the market, Vafiadis said. The growth of the middle class in India and China also will play “critical roles” in the PE recovery, he added. Once the recovery gains some traction, global PE demand growth should average 4.2 percent between 2008 and 2013, according to Houston-based CMAI.
A massive amount of new PE capacity expected — mostly in the Middle East — during the fourth quarter of 2008 and first quarter of 2009 “isn't going away, it's just delayed,” Vafiadis said. More than 14 billion pounds of capacity was expected to emerge during that six-month period, but the true number will be closer to 7 billion pounds, CMAI said.
In the world of end markets, CMAI projects that global demand for PE should begin to recover slightly in most segments during 2009. By 2011, global PE demand in rotational molding should be growing at a rate of more than 6 percent, while PE demand in injection molding, film and sheet, and pipe and profiles will all be advancing at a clip of more than 5 percent.
Globally, PE operating rates are expected to decline to around 75 percent by 2010. In North America, the region's PE export balance of more than 6 billion pounds in 2008 will shrink to less than 1 billion pounds by 2013. More than 1 billion pounds of PE and polypropylene combined are expected to be imported into North and South America by 2010. Most of that material will head to South America, where the region's PE processors are more familiar in working with the 55-pound bags that PE is shipped in around most of the world — with the notable exception of North America.
Older, less efficient PE capacity also will continue to close in North America and around the world, according to Vafiadis.
PE makers “will look at feedstocks, technology, age and the investment needed to be competitive and make judgments [on PE closings] on that basis,” he said. “No region except the Mideast is immune to this.”