Global growth is slowing down here in the second half of 2011, and feedstock economics are rocky. As a result, North American resin makers are feeling more than a little uncertain as they turn their eyes to 2012.
In fact, if it weren't for the promise of abundant new discoveries of low-priced natural gas feedstock, some of them might even be feeling glum. That's what happens when U.S. GDP growth checks in at 0.4 percent for the first quarter of 2011 and 1.3 percent for the second quarter.
But optimism hasn't vanished entirely. New applications — primarily in packaging — could pay off in 2012, and a continued comeback in the automotive market is lifting spirits a bit.
Plastics News recently checked in with several industry executives, as well as consultants who follow the industry, to find out what 2012 might have in store. Here's what they had to say:
Although North American PE growth rates haven't been robust in 2011, newfound supplies of natural gas — and expected capacity increases in ethylene feedstock — have PE pros breathing somewhat easier as they look toward 2012.
Natural gas discoveries are “the greatest news for North America in a long time,” said Mauro Gregorio, commercial vice president of Dow Chemical Co.'s Performance Plastics unit in North America.
“Now we're talking about feedstocks making the U.S. more competitive. Five years ago, we were talking about all this new resin from the Middle East being a tsunami,” Gregorio said.
“From innovation and exports to feedstocks and energy, [natural gas] helps [PE] producers and our customers and the economic recovery of the U.S.,” he added.
The Midland, Mich.-based PE supplier is one of several petrochemical firms to announce plans to bring on new ethylene capacity in North America in the next few years as a result of major new natural gas finds, primarily in the Marcellus Shale region, which covers most of Pennsylvania as well as parts of Ohio, West Virginia and New York. Natural gas is used to produce ethane, which is converted into ethylene before being polymerized into PE.
As a feedstock, ethane has been much more affordable than crude oil-based naphtha, which is used to make PE in most other parts of the world, with the exception of the Middle East, where ethane is even less expensive than it is in North America.
“Everything's changed,” said Jeff Taylor, senior vice president of PE at Westlake Chemical Co. in Houston. “We had been worried about the Mideast exporting here, and now we've got the second-lowest [PE] production cost in the world.”
Next year's U.S. presidential election also could affect the PE market, according to Phil Karig, managing director at Mathelin Bay Associates LLC consulting firm in St. Louis. A victory by a candidate who supports the use of hydraulic fracturing — a process criticized by some environmentalists — to access natural gas would be a boost for the PE market, he said via e-mail.
“If hydraulic fracturing and the resulting abundance of low-cost natural gas are widely recognized … as a source of American jobs and new domestic energy … the future of the U.S. PE industry will be secured for the long-run,” Karig said.
But, he said if the election results in “widespread environmental moratoriums on fracking … the U.S. natural gas advantage may never live up to its full potential, and the PE industry's journey from zero to hero … could come to an abrupt halt.”
In the near term, North American demand growth of around 2 percent in 2011 is not expected to improve greatly in 2012. At Chemical Market Associates Inc. in Houston, PE/PVC analyst Nick Vafiadis is expecting domestic PE demand, which is up about 4 percent so far this year, to grow 2 percent annually from 2011-16.
“In North America, we anticipate [PE] demand growth below GDP levels, but exports should remain competitive,” Vafiadis said at a recent conference hosted by CMAI in Chicago.
Others are more optimistic. Dow's Gregorio said if U.S. gross domestic product checks in at 1-2 percent next year, regional PE demand should grow 2-3 percent. “If any clouds around us disappear, it could lead to a quick recovery,” he added. “All recent economic activity — in industrial, consumer and durables — points to a recovery in the second half of 2012.”
Mike Burns, a PE market analyst with Resin Technology Inc. in Fort Worth, Texas, claims “brighter days lie ahead” for the North American PE market. “The last two years were disruption-driven years for PE and ethylene and that's led to tighter availability,” he said. “But now we've seen four months of improved inventories and the market's been less volatile.”
Burns added that development of new products in PE-based shrink and stretch films also could boost packaging demand in lunch meat, pet food and other areas. Westlake's Taylor said his firm has seen strong demand for PE in coated paperboard, possibly because of environmental concerns over products made completely of plastic. PE stretch film demand “slowed down over the summer, but is coming back,” he said.
CMAI expects PE packaging and film markets to continue their recovery, but at a moderate pace, Vafiadis said.
PE packaging “will always be there,” said Dow's Gregorio. “And if economic stimulus takes off in the U.S., there could be a lot of infrastructure work that would help pipe demand. But overall, we haven't seen too much of a drop. People still go to supermarkets. Hygiene and medical markets also have been good.”
Although projected PE capacity expansions could lead to as much as 3.5 billion pounds of new capacity in North America in 2014-16 — not counting a major expansion in Mexico's Ethylene XXI project — market watchers said processors should not be expecting waves of new capacity based solely on natural gas discoveries.
“There's a bit of an announcement war going on,” Taylor said of the flurry of recent natural gas-based expansion reports. “But if you look at the forecasted growth rate for domestic PE, it's not that high. It's in the GDP range. So if we do get new [PE] capacity, it would be to replace old capacity or as a bet on the export market.”
Gregorio agreed, saying shale projects “are more of a play on back integration and getting us back to reliable and globally competitive growth of feedstock.”
“Most of the announcements have hedged pretty well — they're for 2015, 2016, 2017,” Taylor added. “It doesn't take that long to design and build an ethylene plant, so all of these [ethylene plants] might not get built.
“There might be room for one [PE] plant,” he said.
Burns at RTI was blunt, especially about rumors that a PE plant could be built near the Marcellus Shale. “You'd have to be nuts to build a PE plant in Pennsylvania,” he said. “It would give you more resin than you need.”
In pricing, North American high density PE is up about 6 percent since Jan. 1, with low density PE and linear LDPE each up about 2 percent. Recent price decreases softened price hikes from earlier in the year. In the longer term, PE pricing may end up being tied in to prices for crude-based naphtha in Asia, which is the world's largest PE-consuming region, Vafiadis said.
“Ethylene and ethane prices may not matter as much as they used to,” he explained. “North American [PE] producers might become price takers.”
And previous concerns about Middle Eastern PE washing up on North American shores have vanished.
“With the economy the way it is, this is the last place [Middle Eastern PE makers] want to come,” Vafiadis said. “It's the last battle they want to fight.”
The North American PP market continued to sing the volatility blues in 2011, but a sweeter song might be heard in 2012.
“The market for the last few years has been characterized by extreme volatility,” said Mark Nikolich, commercial and supply vice president with Braskem America in Philadelphia. “Not just in price and demand, but we've lost the seasonality associated with the industry. As a result, it's difficult to ascertain what true demand is.”
This uncertainty and declining profitability has allowed Braskem to become a major player in the market in less than two years. The unit is part of Brazilian plastics giant Braskem SA, which was able to buy North American PP businesses from Sunoco Inc. and Dow Chemical Co. when those firms decided to exit the market.
Phillips Sumika Polypropylene Co. made a similar decision last month when it announced it would close its PP plant in Pasadena, Texas, by the end of the year. That event will be the first plant closing in North America since early 2009.
São Paulo-based Braskem paid a total of $853 million for the Sunoco and Dow units, which included five PP plants in the U.S. and two in Germany. In doing so, Braskem has bought into a market where demand had fallen almost 7 percent through July. Tight supplies of propylene feedstock and a series of price hikes have regional prices up a net of 21 percent since Jan. 1.
“Right now, our prices are very high compared to rest of world,” Nikolich said. “We might continue to be constrained by feedstock availability. We're projecting moderate growth relative to GDP of 1.5 to 2 percent. It's incremental growth in a mature market.”
Other market watchers, however, remain skeptical about short-term pros-pects for North American PP.
“I wish there was something I could point to, but I don't see much improvement,” said PP market analyst Scott Newell at RTI. “The high price of the [PP] material has been difficult and some end uses are leaving the region.
“The global position on price is high and that hasn't helped, but a lot of it is the overall economy — the effect on energy prices and demand factors,” he added. “And there's not much chance for exports with these high prices. It's hard to see the [North American] market doing better than GDP growth in 2012.”
CMAI PP market analyst Esteban Sagel doesn't see it much differently. “Volatility in PP is at an all-time high vs. history and will continue to be quite elevated during 2012,” he said, noting that average price increases for 2011 were 7 cents per pound, with decreases averaging 6 cents — both high numbers.
From 2000-07, PP increases averaged less than 3 cents per pound, with decreases averaging about 2 cents. “The demand level is decreasing and volatility is increasing,” Sagel said.
PP “is becoming a very expensive material vs. what it was at the beginning of the decade,” he added. “It had been a very versatile material taking demand away from other materials. But now that's not the case.”
Sagel also pointed out that Braskem actually made itself more reliant on outside propylene purchases by buying the Dow business, which was less integrated on feedstocks than Sunoco's was. “Braskem paid only 40 percent of the replacement cost of assets for Dow, but they have to buy more than half of their propylene in the merchant market,” he said.
The Phillips Sumika plant closing “is a positive,” Sagel added, “because more propylene will be available. It will help bring things back into balance.”
For PP, the longer-term issue is that increased use of natural gas-based ethane feedstocks is good news for ethylene but bad news for propylene, since ethane produces less propylene per unit than crude oil-based naphtha does. Propylene supplies have been further tightened by lower U.S. gasoline consumption, since propylene is a byproduct of gasoline production.
On-purpose propylene production from Enterprise Products Partners LP in the Houston area is set to expand, and Dow is planning the same in the next few years. But those projects' potential impact won't be felt in 2012. Propylene demand also has been diverted to other higher-priced derivatives, Sagel said, making things even tougher for PP.
In an e-mail, Mathelin Bay's Karig characterized “the health of the U.S. PP market” as “the flip side” of PE.
“While PE producers are benefitting from low-cost natural gas feedstocks … PP producers are suffering the downside of the shift to even more light, natural gas-based feedstocks,” Karig wrote. “The insufficient quantities of propylene available … are increasing the volatility of PP pricing, and the high cost of propylene is shutting resin producers out of export markets.
“Unless the overall situation changes drastically and soon … 2012 is almost certain to see additional consolidation among PP resin producers in the form of mergers or sales and outright capacity shutdowns.”
All is not gloom, however. Braskem's Nikolich pointed out that demand from the North American auto sector has improved as auto builds have increased. Packaging-related PP uses also have held up well, he said. Closures and oriented-film markets for PP also are solid and thermoformed uses are growing, Nikolich said.
“There's been a lot of talk about feestock prices and switching resins, but we really haven't seen it happening all that much,” he said. “Polypropylene and its derivatives are where they should be used, even at these price points.
“Take BOPP film for example,” Nikolich said, “PP is engineered for that. It's the right resin for the right application.”
RTI's Newell said he has talked with some PP processors that considered switching to HDPE or polystyrene, but decided against it because of the time and expense connected to acquiring new tooling, requalifying materials and “getting customers to buy into it.”
At Braskem, Nikolich continues to look ahead. “Braskem believes in polypropylene,” he said. “We're commited to it and we're growing it. We expect prices to continue to be high for a few more years, but that's not all bad. There's a lot of economic return value in the propylene molecule, and that will lead to greater supplies and to growth.”
Nikolich also pointed out that although increased natural gas development isn't necessarily advantageous to PP, it will still increase the overall amount of propylene available in “one of the lowest cost centers in the world.”
“Braskem is about growth, and North America is part of our international strategy,” he said.
The ongoing trials and tribulations of the U.S. residential construction market have rearranged the priorities of North America's PVC makers. In 2011, as in 2010 and as is likely in 2012, exports are king.
“Exports are still strong, and domestic demand is sluggish and slow,” said one longtime industry executive who declined to be identified. “Building numbers are still pretty low, and we don't foresee a lot of change.”
In the first seven months of 2011, U.S./Canadian PVC exports grew almost 27 percent, while domestic demand fell almost 5 percent, according to the American Chemistry Council in Washington.
Exports generated 34 percent of all of the region's PVC sales. Exports might be close to 40 percent this year and could approach 50 percent in 2012, according to Vafiadis at CMAI. By comparison, the export share was only 25 percent in 2009 and was a mere 13 percent in 2007, when the U.S. housing market was much stronger.
PVC makers have reacted to this boom in exports by adding capacity even amidst the depressed domestic housing market. Since late 2010, Formosa Plastics Corp. USA has added more than 300 million pounds of PVC capacity at sites in Texas and Louisiana. Not to be outdone, Shintech Inc. has added more than 600 million pounds of capacity at a location in Louisiana. Almost all of this production is earmarked for export markets.
The slide of U.S. housing remains breathtaking. New construction of single-family homes and apartment units is expected to hit 600,000 this year, rising for the second consecutive year. That's mildly impressive until you consider that number was more than 1.3 million as recently as 2007.
The longtime executive said he heard a recent prediction of 720,000 housing starts for 2012 — and thinks that number is too high.
“PVC buyers have been struggling for the last few years, and suppliers have been struggling with them,” Vafiadis said. “But now there's been a change in attitude: [PVC makers] realize they don't need to be tied to the U.S. construction market like they were in the past.
“The U.S. PVC consumer is not the only game in town,” Vafiadis added. “The market is driving to a global price.”
New natural gas supplies and low-cost ethylene also will help PVC, which uses ethylene as a feedstock. Because of these affordable feedstocks, North America's export-heavy PVC trend “has the potential to be a sustainable model,” said RTI's market analyst for PVC, Mark Kallman.
In 2012, North American PVC's domestic-export split could be affected by a potential drop in Chinese demand, which could impact North American exports, according to Mathelin Bay's Karig.
“A big question for 2012 is whether attempts by the Chinese government to slow their economy will finally be successful,” he said in an email. “At this point, absent a sharp slowdown on a global scale, Chinese PVC demand should continue at a relatively robust pace during 2012 and continue to support export demand for PVC produced with low-cost ethylene in the U.S.”
Kallman said the domestic PVC market “might struggle well into the next year, if not for the whole year.”
“We don't see much more than 2.5 percent domestic growth for next year,” he added. “It should stay pretty close to GDP in terms of demand. The housing market still has a lot of issues. There's still an oversupply of new homes and overhang of houses available from foreclosures.”
But hope is abundant at CMAI, where Vafiadis said he believes the domestic PVC field has hit bottom and will begin to rebound next year, eventually averaging 4 percent growth from 2011-16. PVC's dominant pipe market is expected to grow at a little more than 4 percent in that forecast period, lifted by an ongoing uptick in housing starts.
“The hole that's been dug is very deep, but we're going to begin the long climb out,” Vafiadis said. “Siding also will recover, but its recovery will be longer and flatter than that of pipe.”
Even despite recent domestic doldrums, new PVC applications “emphasize that this is a terrific time for PVC pipe to continue penetrating vs. traditional markets like ductile iron,” he added. PVC pipe is priced lower than iron, and “PVC is still the preferred material in window markets,” he said.
A move toward international pricing also could increase the impact of the Chinese market on North American PVC pricing. Although China is expected to remain a major importer of North American PVC, Vafiadis said that nation likely will use its abundant capacity to make coal-based PVC through the acetylene process to keep North American prices from getting too high.
China astonishingly added almost 7 billion pounds of PVC capacity this year, but is producing at an operating rate of less than 70 percent, he added.
North American PVC prices are up almost 13 percent since Jan. 1. Looking ahead, Vafiadis said that regional PVC prices are expected to remain high for the next several years, as U.S. PVC prices “decouple from U.S. resin demand and U.S. ethylene production economics.”
As a result, North American PVC processors “must begin to look beyond the dynamic of their particular industry when pricing their products,” he said.
The North American PET field is looking to recover from low growth and a wave of consolidation that has placed almost 90 percent of the region's capacity in the hands of only three suppliers.
“A lot depends on where the economy is going and on consumers,” said Muthukumar Paramasivam, vice president of sales and marketing for Indorama Ventures Public Co. Ltd. of Bangkok, North America's second-largest PET maker.
He said 2012 “could be another challenging year.”
“We need to face it and get used to it. It's going to come down to how we respond and reduce costs and handle imports,” Paramasivam said.
Indorama saw sales growth of about 4 percent in the region in the first half of 2011, but recent slowdowns should bring total growth for the year down to around 3 percent, he said, and similar growth is expected for 2012.
Those results are more optimistic than expectations of CMAI PET analyst Chase Willett, and of another longtime market watcher who declined to be identified. Willett pegs 2011 North American PET growth at 1.5 percent and 2012 at 2 percent. The market watcher sees 2011 at flat to up 1 percent, with similar expectations for 2012.
Lightweighting of PET bottles used for carbonated soft drinks and water was reduced the market's volume needs by using less resin per bottle. Soft drink and water consumption in the region also are seeing low single-digit growth at best. But lightweighting may have run its course, according to Paramasivam.
“There's not much more they can do,” he said. “Companies like Nestlé and Pepsi and Niagara already are using less than 10 grams [of PET] per bottle, and some CSD [carbonated soft drink] bottles are at 20 or less. They might do some lightweighting of heat-set bottles [for sports drinks], but that won't have the same impact as bottled water.”
Willett said high resin prices will lead bottlers to continue to look for lightweighting ideas. In spite of low growth in demand, North American PET prices have remained high — up 19 percent since Jan. 1 — because of tight supplies of paraxylene feedstock.
Paraxylene “is expected to remain strong,” according to Willett. He added that PET “is too far down the chain” to benefit from low natural gas prices in the region, and is more affected by crude oil. At Indorama, Paramavisam said that paraxylene margins are “too high,” but that a market correction may not occur until 2013.
North America “is a very mature market [for PET],” he said. “There's not a lot left for PET to replace in North America, CSD and water consumption has slowed. Water should still grow at a GDP-plus rate, but CSD will be at GDP-minus.”
In spite of these low growth rates, Indorama opened a billion-pound capacity plant last year, and Italy's M&G Group has plans to open a massive 2.2 billion-pound-capacity site in Corpus Christi, Texas, in 2014. Yet, three producers have left the market since late last year: Eastman Chemical Co. and Wellman Inc. sold their PET units to DAK Americas LLC of Charlotte, N.C., while Invista sold its PET resin and fibers business to Indorama.
“The No. 1 and [No.] 2 players sold to the No. 3 and [No.] 4,” Willett said. “You don't usually see that in a commodity market.”
“As the number of players has come down, operating rates have improved and are now in the mid-80s,” Indorama's Paramasivan said. “If we can get back to a 5-6 percent growth rate, we'll be comfortable.”
The longtime PET watcher said the North American PET market “is sustainable” with operating rates in the low 80s, and also pointed out that the fewer number of suppliers puts pricing control in the hands of PET makers, not their customers.
Willett said ongoing additions of capacity that appears to be unneeded — both in North America and in Asia — are happening because of the low cost of doing so. A PET plant with more than 1 billion pounds of annual capacity now can be built for less than $200 million.
And M&G's big move in Corpus Christi, Willett said, increases the firm's level of feedstock integration and allows it to keep pace with DAK and Indorama.
“In a commodity market, you need to get bigger or get out,” he said. “If you're a consumer, you applaud this move, but not if you're a competitor.”
As for further closing of existing North American PET assets, Willett said it could happen.
“But the smaller assets are now in the hands of the biggest players, who are using them for niche products like heat-set and sport drinks, so they're less likely to consolidate,” he said. “They didn't spend $1.5 billion to see margins stay where they are.”
Polypropylene's pain might be polystyrene's gain in 2012.
The volatility of North American PP pricing could create business opportunities for PS, according to Scot Mitchell, commercial vice president with PS maker Americas Styrenics LLC in Houston.
“We could see a solid shift [for PS] back into yogurt cups this year,” Mitchell said. “And that's a result of the current price point and volatility of polypropylene.”
PS has struggled in recent years because of high prices for benzene feedstock leading to lower demand; so, anticipated growth of 1 percent in 2011 and of more than 1 percent in 2012 actually comes as a relief.
“There's been a bit of a shift in demand,” Mitchell added. “One-time use was down in the first half, but the second half looks OK. Polystyrene isn't losing out to other materials as much as it has in the past.
“We're still in the doldrums of the economy, but food service isn't an impulse purchase. However, if you're not confident, you're not going to buy as much of it.”
RTI PS market analyst Stacy Shelly is a little less convinced of North American PS growth in 2011, saying the market will need a strong fourth quarter to finish the year in positive territory.
“There might be a slow start on the holiday season because of uncertainty about the economy,” he said. “Large [PS] clients aren't buying as much as they normally would be. It's a combination of inventory control and decreased demand.”
Food-focused applications, which make up the biggest end market for North American PS, “are holding their own but not seeing growth,” Shelly added.
Short-term PS demand “will see modest growth” because of competitive pressure, limited capacity additions, feedstock tightness and pricing and environmental hurdles, according to CMAI analyst Bob Dennett. But Dennett added that PS “will continue to grow on a global basis.”
North American PS prices are up an average of 22 percent since Jan. 1, with almost all of that increase tied in to higher prices for benzene feedstock, used to make styrene monomer. Higher prices for benzene are expected to continue through 2012 because of supply tightness, Dennett said.
Much like with propylene feedstock for PP, natural gas-based light feedstocks are good for ethylene but not for propylene and benzene on a per-unit production basis, he added.
The shrinking number of North American PS makers contracted even further this year when BASF Corp. and Ineos Group combined their styrenics assets in the region to form Styrolution. That business now joins Americas Styrenics and Total Petrochemicals as the region's large-volume PS makers.
“Pricing power in the PS business has shifted markedly from resin buyers to resin producers over the last several years as the number of resin producers shrank and monomer and polymer capacity was subsequently shuttered,” Mathelin Bay's Karig wrote in an email.
“With PS operating rates still low,” he added, “resin producers will have a continued incentive to shut or mothball incremental production capacity in 2012 to protect the profitability they have fought so hard to achieve.”
The consolidations have affected smaller buyers — those buying 2 million pounds or less per year — which in some cases now are paying higher prices, essentially because they have fewer suppliers to buy from, according to Shelly at RTI.
“The big guys are still OK on price,” he said of the PS market. “Volume still drives the show.”
PS makers' profit margins have been helped by rationalization and consolidation, according to Dennett, and prices should remain relatively flat and stable in the near future, reflective of the situation for benzene and styrene.
“The market remains extremely competitive,” Mitchell said. “It's not a tight market and continues to be competitively priced.”
PC makers find themselves sailing into an uncharted world where CDs, DVDs and other optical-media products no longer hold sway.
Optical media had been PC's largest end market for several years, but in 2010 it fell to third, behind electronics and film and sheet.
“Some [DVD] media are transferring to Blu-ray, but there's been an overall erosion of music and [recordable CDs],” said Bill Russell, base resins business leader with PC maker Sabic Innovative Plastics in Pittsfield, Mass. “The total is shrinking.”
“Optical media was the powerhouse that drove the polycarbonate industry,” said Adrian Beale, PC market analyst at CMAI. “But the iPod and iPad generation is moving away from discs.”
Even with optical media on the wane, Beale expects U.S. PC demand to check in at 4 percent for 2011 and increase to 4.5 percent next year, driven in part by a recovery in automotive.
At PC maker Bayer MaterialSciences LLC in Pittsburgh, North American sales and marketing Vice President Sam Stewart said PC demand in automotive is up 10 percent this year and should grow at a similar rate in 2012.
“Since 2009, things have rebounded nicely in the auto market,” he said. “There are more pounds of polycarbonate per vehicle. That's increased from 6 to 9 pounds since 2005. Automakers want more weight reduction in instrument panel systems and lighting because they're looking at higher fuel standards.”
The auto market “is still looking at material substitution,” Sabic's Russell added. “They want to go lightweight for fuel efficiency, and that's good for the industry and the economy.”
On the new-product front, Russell said Sabic IP is seeing opportunities in alternative energy markets like solar and wind, and in electric vehicles. The upcoming World Cup and Summer Olympics in Brazil also should drive PC growth in that part of the world, since the material often is used in stadium infrastructures.
Bayer plans to introduce two new grades of PC for LED markets in display, signage and lighting. Stewart said the firm also is seeing strong sales growth of 5-7 percent into medical applications, where PC is being used in syringes, surgical parts, insulin pens and home health-care products.
North American PC prices have ebbed and flowed with benzene and other feedstocks this year and are up only about 3 percent since Jan. 1. North America isn't scheduled to see new capacity, but some international additions could affect global PC markets.
The big one is Saudi Kayan — a separate project that shares some ownership with Sabic IP — bringing almost 600 million pounds of PC capacity on line at a new plant in Saudi Arabia that ranks as the world's largest. In China, Sinopec was expected to bring on more than 130 million pounds of capacity this year, with Chi Mei Corp. adding 165 million pounds there next year.
But overall, global PC “is still a relatively balanced market,” according to Beale. “New capacity won't bring it down, and stronger demand growth will allow North America to remain an exporter of polycarbonate.”
Looking to buy a new car next year? That's just fine with Dave Donofrio. Heck, he just might help you build a garage for it if that would affect your decision.
Donofrio is global business director at North American nylon 6/6 resin leader DuPont Co. in Wilmington, Del. Automotive remains the largest end market for nylon 6 and 6/6. In North America, the market continued its recovery from a recession-era drubbing.
North American auto builds are set to hit the 12.9 million mark this year, up from 11.8 million in 2010. For 2012, that number is expected to grow to 13.9 million.
“Sheer numbers in auto should be better next year,” Donofrio said. “Traditional things are driving nylon sales. [Automakers] want to integrate and simplify in auto parts. Our sales into automotive should be up at least 7-8 percent this year, and as long as the build schedule holds up we should see the same in 2012.”
DuPont showed its faith in the automotive comeback earlier this year when it restarted nylon resin plants in Tennessee and Virginia. Both plants had been closed for more than a year.
Tightness in raw materials such as caprolactam for nylon 6 and butadiene and adiponitrile for nylon 6/6 caused some tense moments in nylon sourcing this year, although supplies have improved as the year went on, according to CMAI nylon analyst Paul Blanchard
“Buying nylon became a contact sport in 2011,” he said. “Product [profit] margins have improved quite a bit, although nylon 6 supplies feel tight because of tight caprolactam. Nylon 6 polymerization capacity now exceeds the global caprolactam supply.”
In nylon 6/6, Blanchard said supplies of adiponitrile feedstock were affected earlier in the year by freezing temperatures in Texas that limited production there.
“Nylon supply has been pretty tight all year,” Donofrio said. “There's been tightness in raw materials, with the situation in butadiene very publicized. There probably won't be much improvement there [in 2012]. There's a lot of competition for that molecule outside of the [nylon] industry.”
Blanchard added that nylon 6 is currently more profitable than nylon 6/6, which is “a reversal of their historic roles.”
Donofrio has been encouraged by more use of nylon 6/6 in auto powertrain systems. “In powertrains, nylon can offer chemical resistance, light weight and part integration,” he said. “It's the perfect fit in that application space.”