The North American polyethylene market has bounced off the ropes and is still fighting.
The market has benefited from affordable natural gas in the region, as well as from delays in new capacity slated for the Middle East, said speakers at a pair of recent industry conferences in Houston.
The [PE] industry's performance has been better than expected in what could have been a trough period, with the exception of the Middle East, Chemical Market Associates Inc. market analyst Nick Vafiadis said at his firm's World Petrochemical Conference, held March 23-24 in Houston.
Demand growth also has returned to the market, with North American demand up almost 8 percent in 2009 and 2010. Regional demand growth for 2010-15 is expected to be just under 3 percent a year, according to Vafiadis.
Low-priced natural gas feedstocks also will keep North American PE competitive around the world. Natural gas optimism also is leading many producers to consider expanding their ethylene and PE capacities a concept that Vafiadis said would have been unthinkable even a few short years ago.
We had thought that North America was going to be a net importer [of PE], but now exports look like they'll hold up well to 2015, Vafiadis said.
At a similar event hosted by DeWitt & Co., DeWitt President Earl Armstrong asked where the expected flash flood of Middle Eastern PE went.
We came up short on projected Mideast [PE] production and North America picked up the slack, Armstrong said at the DeWitt event, held March 23-24 in Houston. The Middle Eastern companies were dealing with some mechanical issues, and feedstock and catalyst shortages, as well as sanctions and staffing problems.
Globally, Vafiadis said, PE demand growth should average 5.4 percent annually from 2010-15. Western Europe's growth rate should be similar to that of North America at just under 3 percent. Higher demand growth rates will be seen in northeast Asia, including China, at 7.4 percent and in South America at 6 percent.
PE operating rates worldwide had been around 80 percent in 2008, but now are expected to be above 85 percent by 2015. In North America where older capacity has been shut down and not replaced operating rates for 2015 should be around 90 percent. During that same period, global PE capacity will be expanding at a rate of less than 4 percent annually, which won't keep up with global demand growth.
One unexpected outcome of recent PE moves has been the emergence of low density PE as a much-sought-after material. Many thought the material would eventually be replaced by linear LDPE, but tight supply and growing margins have given it specialty status, according to Vafiadis. It's a superstar, he said.
The North American market also will see new PE capacity from a new joint venture plant in Mexico between Mexican materials firm Grupo Idesa SA de CV and Brazilian petrochemical giant Braskem SA. The plant, set to open in 2015, will have annual capacity of 1.5 billion pounds of high density PE and almost 700 million pounds of LDPE. Most of its production is expected to remain within Mexico, which long has been a net importer of PE.
And even with natural gas creating a big delta between PE cash costs and contract prices in North America, Vafiadis said the market may be moving toward a global PE price established by crude oil-based naphtha feedstock economics in China, which is now the world's largest PE consumer.
Strong exports are expected to keep North American PE operating rates relatively high, which will give the region's PE makers leverage in the domestic market and allow them to push price increases through. Aging investments and assets in the region are increasingly conducive to breakdowns, which Vafiadis said also should keep the market tight.
The current North American market is very volatile, according to a recent report from Resin Technology Inc., a consulting firm in Fort Worth, Texas. If the region's PE makers draw down inventory again, it could provide some leverage to upward prices despite any feedstock price retractions, the report said.
Margin growth and improved demand also is leading to talk of a super cycle of prolonged positive results in North American PE, Vafiadis said. The material also could benefit from material substitution caused by high polypropylene prices, he said.