Global plastics and chemicals growth is expected to increase in the next several years, with prices for crude oil and natural gas feedstocks experiencing more moderate upswings.
That was the outlook from industry veterans Gary Adams and Bill Sanderson, who both spoke at the World Petrochemical Conference hosted by Chemical Market Associates Inc., held March 24-25 in Houston. Adams is president of CMAI, while Sanderson is president of Houston energy consulting firm Purvin & Gertz Inc.
After a 7 percent drop in 2008, caused by the global economic recession, worldwide plastics and chemicals demand should increase an average of 5 percent per year between 2009 and 2015, Adams said.
North American demand for those materials also should improve after being essentially flat from 2000-07 and falling 16 percent in 2008. Adams and CMAI are forecasting 2 percent annual growth for the region from 2009-15.
North America is behaving like a mature market, and will need a cost advantage to return to a demand growth pattern, he said. Demand is better in Asia. In other regions of the world, it's going to be weak to moderate.
Short-term market tightness for several key plastics and chemical products could dissolve as commissioning of new plants improves and some operating problems are solved, Adams added. Once that phase ends, the global market actually could see overcapacity, mainly due to a wave of new capacity coming from Asia and the Middle East.
As a result, Adams said he doesn't expect pricing power to turn in favor of plastics and chemical producers until 2013.
The large wave of new international supply has had limited impact so far, he said. The demand crisis is over, but the oversupply crisis has just arrived.
Market rationalization is progressing, but it's not finished. We might see more consolidations and closures, Adams said.
Underutilized global capacity at almost 30 percent in 2010 is a steep increase over historical levels and the market must deal with it going forward, according to Adams.
In the crude oil market, Sanderson does not see prices surging back to the $140-plus levels they hit in mid-2008. Instead, Sanderson said prices should bounce between $70 and $100 per barrel through 2015, with prices for 2010 leveling out near $80.
There's going to be a recovery in demand, but we'll continue to see volatility, he explained.
In natural gas, increased supplies resulting from improved methods to extract shale gas in numerous parts of the country is a game-changer that could keep North America more competitive for several more years, Sanderson said.
Government agencies already have increased their estimates of U.S. natural gas reserves by 60 percent between 2006 and 2008. New shale gas supplies should stem a decline in traditional production, Sanderson said.
North American natural gas prices should remain in the range of $4-$5 per million British thermal units in 2010, but could eventually approach $10 by 2015, according to a Purvin & Gertz projection.
But natural gas will remain a competitive feedstock as long as it enjoys a ratio of more than 6-to-1 vs. crude oil.
In early trading March 29, that ratio was more than 20-to-1, with natural gas just under $4 and oil at more than $82.
Competitive natural gas allows North American polyethylene to be highly advantaged vs. most other parts of the world, according to Adams, while allowing polystyrene and PVC a moderate advantage. However, affordable natural gas offers no advantage at all to polypropylene, he added, since natural gas produces less propylene monomer feedstock than does crude oil.
Adams also cautioned that U.S. shale gas doesn't benefit everyone, since a lower Btu value doesn't necessarily mean lower feedstock and electricity costs market forces will prevail.
Copyright 2010 Crain Communications Inc. All Rights Reserved.