Markets for PVC and PET should start to head in the right direction this year, although each market still faces major challenges.
Chemical Market Associates Inc. market analyst Nick Vafiadis expects U.S./Canadian PVC demand to improve in 2010, while his colleague Chase Willett expects the same result for U.S. PET demand. Vafiadis and Willett spoke at their firm's World Petrochemical Conference, held March 24-25 in Houston.
U.S./Canadian PVC demand fell for the fifth straight year in 2009, and averaged a drop of almost 8 percent per year from 2004-09 as housing starts and construction-related business plummeted. But an improving economy should produce demand growth of 4.2 percent this year, and average annual growth of 5.3 percent from 2009-14, according to CMAI.
We're beginning to see an uptick in global PVC demand, which should be sustained by a prolonged period of positive [gross domestic product] growth, Vafiadis said.
PVC demand in 2009 benefited from demand in China that was spurred by stimulus spending from the Chinese government. China's seemingly insatiable demand for PVC helped the market recover from the demand loss of 2008, Vafiadis added.
But longer-term, global PVC overcapacity will lead to an extended period of capacity closures and consolidations, which sets the stage for much-improved U.S. margins as new investment is delayed, he said.
On the pricing front, PVC prices are expected to trend higher in the next few years.
PVC resin buyers are beginning to believe that higher PVC prices may be a reality, as opposed to a short-term problem to be endured, Vafiadis explained.
For PET, low-single-digit demand growth is expected in the U.S. in 2010. But PET makers can't seem to get out of their own way, adding capacity at a time when customers seem to be finding ways to use less virgin PET in their products.
As a result, 2008 marked the first time in the 30-plus year history of PET that global demand fell. To make things more challenging, excess PET totals should surpass 15 billion pounds by 2011 in a market of about 30 billion pounds. The imbalance should drop operating rates below 70 percent.
PET has seen unreasonable capacity growth over the past five years that will continue to push operating rates to unsustainable levels, Willett said.
In the U.S., carbonated soft drink sales have contracted for most of the last five years, and sports drinks and single-serve juice have been hit hard as point-of-purchase and convenience store sales have declined, Willett said. Bottled water had been a growth engine for PET, but that market has seen two years of declines as consumers switched back to tap water, he added.
Reduced consumer consumption is only part of the story of the collapse of demand in the North American market. The combination of package lightweighting and increased recycle content is likely a larger culprit.
And yet Indorama Polymers Public Co. Ltd. of Bangkok is adding almost 1 billion pounds of PET capacity in Decatur, Ala., and new market entry Selenis Canada Inc. plans to launch with more than 300 million pounds of capacity near Montreal, where it is based.
North American capacity growth has been problematic as producers continue to vie for market share by building new and larger capacities, which only make the market longer, Willett said.
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