ATLANTA (Oct. 4, 9:50 a.m. ET) — During his nearly 30-year career with Nova Chemicals Corp., Chris Gick said, he hasn't seen anything change as quickly as the dynamic between propylene and ethylene.
“Three years ago, companies couldn't seem to be less interested in their ethylene-based businesses. Today, we're on the cusp of a new investment boom in ethylene in North America,” Gick, the company's Pittsburgh-based industry dynamics manager, said at Caps & Closures 2011, held Sept. 12-14 in Atlanta.
In a Sept. 13 presentation at the conference, Gick said the plastics industry should prepare for coming changes upstream from polymer production, in part based on commodity consumption trends — such as gasoline and jet fuel — in North America.
Bearing in mind that Nova is a major polyethylene supplier, Gick said, several factors are accumulating to keep propylene more expensive than ethylene for the next five years and beyond.
* Less than 10 percent of North American propylene is made on purpose, through methods such as metathesis and methanol-to-olefins conversion, he said. Upward of 60 percent comes out of refineries, while ethane crackers will account for about 30 percent.
* With federal Corporate Average Fuel Economy standards mandated to reach 35 mpg by 2016, and with a 54.5-mpg CAFÉ target up for passage by Congress in 2012, petroleum producers will see less demand for gasoline, he said.
* According to Gick, in ethylene crackers, the second major source of propylene monomer in North America, for so-called “wet gas,” ethane must be removed in order to meet pipeline specifications — its only market is ethylene.
“Because of the changing structure of the industry, propylene basically has to compete for molecules coming out of the ethylene and refinery operations by bidding up the price,” Gick said.
Crude oil price volatility between 2006 and 2008, plus recent shale gas discoveries in North America, made the materials suppliers' ethane cracking preference stronger, and that's where it's staying for the foreseeable future, in Gick's opinion.
By 2016, supply additions by major producers will only a about 3 billion pounds to the propylene supply in North America — where it will stay through 2020 — while ethylene suppliers will add massively, shooting the supply from 4 billion pounds in 2016 to 20 billion pounds in 2020, Gick said.
He mentioned that Nova in 2013 will switch to light feeds at its Sarnia, Ontario, facility in 2013; that will reduce propylene production significantly from 900 million pounds.
* While Sunoco Inc. offloaded its PP business to Brazil's Braskem in 2010 (Braskem also bought Dow Chemical Co.'s PP business in 2011) Sunoco is weighing whether to idle its for-sale refineries at Philadelphia and Marcus Hook, Pa.
* Phillips Sumika Polypropylene Co. is closing its PP resin plant in Pasadena, another sign that U.S. producers are moving away from propylene-based polymers, Gick said
While both PE and PP exports from North America to the rest of the world are declining, those companies heavily invested in propylene-based polymers will experience a different result than those dependent on ethylene-based products, according to Gick.
“Being able to pull back on exports to satisfy the domestic [polyethylene] demand will continue to be a factor in the region,” Gick said.
“On the polypropylene side, [the material is] probably going to be in a net import situation within the next five years, conservatively.”
The upshot of all the changes is that polypropylene prices for July 2011 peaked at 256 percent of the January 2009 price, while PE prices peaked at 180 percent.
Flexibility to convert both polymers has sustainable valuable, Gick said, while at the same time downplaying the impact that biobased materials will have on the marketplace.
In fact, the growing economies in places like Brazil, China and India may even benefit Nova's ethylene business, as consumers begin eating more meat, he said.
“If you're going to be producing more meat, you're going to need more corn to feed more cows. You can use packaging such as heavy-duty polyethylene sacks to reduce wastage [of livestock feed].”
In addition, more kernels going into the bellies of cows will mean less feedstock available for corn-based plastic, he said.