The North American polyethylene market might be struggling a bit as 2011 draws to a close — but a top executive with market leader Dow Chemical Co. said he's confident the market will rebound in 2012.
“We've got a bullish view of 2012,” Dow's Mauro Gregorio said in a recent phone interview. “There's inventory destocking going on right now, globally and in North America, in polyethylene and on down through the chain. But if you look at data on auto sales and durable goods, it's moving in the right direction.”
Gregorio, commercial vice president of Dow's Performance Plastics unit in North America, also can point to that unit's nine-month global sales totals. Through September, the unit posted sales of almost $12.6 billion, up almost 11 percent vs. the year-ago period, and ranking first among the six business units operated by Midland, Mich.-based Dow.
Performance Plastics — which includes PE and elastomer products — also registered almost $2.8 billion of pretax profit for Dow, up almost 6 percent vs. the same period in 2010 and again ranking first at the firm.
Gregorio admitted that 2011 was marked by “uncertainty and a lot of volatility” for PE, but he pointed out that ethylene outages caused by maintenance turnarounds in early 2012 could equal 14 percent of North American capacity, creating tightness that could cause prices to climb and improve profit margins for Dow and other PE makers.
If that happens, it could combine with an expected economic recovery late in the first quarter or early in the second to create an advantageous situation for PE makers.
Gregorio also addressed the market situation that caused regional PE prices to fall by an average of 5 cents per pound in October. Dow and other PE makers had attempted to limit the drop to 3 cents, but a widely followed third-party pricing index showed it as 5, and producers eventually matched that number.
“First of all, prices [in October] should have gone up, not down, based on supply and demand,” he explained. “And, overall, industry dynamics should be driven by the dynamic between customer and supplier. We need to recover margin and continue to move in that direction.”
For North American PE pricing, 2011 has been a break-even campaign, with producers giving back all 11 cents of price increases they had won earlier in the year, according to the Plastics News resin pricing chart.
Dow's plans to open a new ethylene cracker on the U.S. Gulf Coast by 2018 remain on track, added Gregorio, a 27-year Dow veteran who was promoted to his current role in August. Newfound supplies of natural gas in North America are allowing Dow and other plastics and chemicals firms to make such moves, since natural gas can be used to make ethylene feedstock ethane. A multiyear reliable and economical source of supply is convincing Dow and others to invest in the region.
In an earlier interview with Plastics News, Gregorio said that new natural gas discoveries “are the greatest news for North America in a long time.”
On the demand front, U.S./ Canadian sales of high density PE were up about 1 percent through September, with a 3 percent drop in export sales dampening a 2 percent domestic gain. Regional sales of low density PE essentially were flat during the period, with domestic sales flat and exports dropping 1 percent. In linear LDPE, sales also essentially were flat, with a 6 percent export drop wiping out domestic growth of almost 2 percent.
Dow ranks as North America's largest LLDPE maker, with 37 percent of annual capacity. The firm also is one of the leaders in the region in LDPE capacity, tied with two other firms with a 17 percent market share. In HDPE, Dow ranks fourth in the region, with 14 percent of annual capacity.
Among end markets for PE, Gregorio said that Dow “is very bullish on packaging.”
“Packaging is our largest end market, and we've invested a significant amount of resources there,” he added. “That market is growing faster than GDP.”
Gregorio also said that PE food packaging “can be the answer to sustainability concerns.”
“One-third of all food is wasted from farm to fork,” he said. “Packaging reduces that gap.”