For high density polyethylene and PVC demand in the U.S. and Canada, 2011 was a good year — but it was only a so-so year for low and linear low density PE and an unpleasant year for polypropylene.
HDPE and PVC sales each grew a little more than 3 percent for the year, according to the American Chemistry Council in Washington. Domestic sales of HDPE actually grew almost 4 percent, but an export growth rate of less than 1 percent lowered the overall total.
HDPE sales were paced by growth of more than 14 percent into the pipe and conduit end market. Growth was almost 20 percent into non-corrugated HDPE pipe and conduit, including gas distribution and water.
It was a mediocre year, however, for LDPE and LLDPE, with LDPE slipping 0.4 percent and LLDPE with a slight 0.5 percent gain. Export growth of 5 percent in LDPE improved a domestic loss of almost 2 percent. In LLDPE, the opposite happened, with a 3 percent export loss weakening domestic growth of almost 2 percent.
LDPE enjoyed 2011 growth of more than 4 percent in extrusion coating — including paperboard — and growth of almost 11 percent in sales to resellers. LLDPE last year benefited from growth of almost 6 percent for sales into trash and can liners.
But the year was a struggle for the regional PP market — including Mexico — as extreme price volatility played a role in a demand loss of more than 4 percent. Prices rose 37 cents per pound in the first half of the year before falling 41 cents in the second half.
Domestic PP demand fell about 3 percent in 2011, but exports tumbled 24 percent, worsening the overall rate. Sales of PP into injection molded cups and containers provided a bright spot, growing almost 13 percent for the year.
Market consultant Robert Bauman labeled 2011 as “a disappointing year overall” for North American PE, citing the flat LDPE and LLDPE markets and adding that much of HDPE's domestic growth came at the expense of PP and not from organic growth.
“There's been no appreciable economic recovery in the U.S.,” said Bauman, president of Polymer Consulting International Inc. in Spring, Texas. “The only number that really matters is unemployment — and that's improved slightly, but not enough to really improve consumer confidence.”
“A lot of these [PE] markets are maturing, and there haven't really been any big new applications.”
And although the regional PE market has been invigorated by announced new capacity — driven by newfound supplies of natural gas, which can be used to make PE feedstocks — Bauman said that domestic demand growth won't be enough to absorb this new capacity when it comes on stream in 2016 and 2017.
The result likely will be lower profit margins for regional PE makers, even if they increase their efforts to sell into the export market, he added.
“The idea is to be the lowest cost [PE] supplier on the block,” Bauman said. “The low-cost suppliers are hoping that the new capacity will cause higher-cost capacity or older capacity to leave the market.”
PP faces a more difficult road until the broader economy improves, according to Bauman, since it's more sensitive to consumer behavior.
The PP market “is divided into durables, semi-durables and packaging,” he explained. “And you're not going to buy a washing machine or re-carpet your house if you're not secure in your job.”
And although natural gas provides an advantage for PE, it has the opposite effect on PP, since the material provides less propylene feedstock per unit than crude oil does. This is leading to an uphill struggle for PP makers. “Higher costs and lower availability are a recipe for declining market share,” Bauman said.
PVC had another Jekyll/Hyde year in the U.S. and Canada in 2011, as export sales growth of 16 percent made up for a decline of almost 4 percent in domestic sales. Exports have continued to rise and grow in importance for domestic PVC makers as the U.S. housing market remains weak. In 2011, exports accounted for almost 40 percent of total U.S./ Canadian PVC sales.
Outside of exports, sales into film and sheet provided a rare bright spot for domestic PVC makers. Sales into that segment grew almost 10 percent in 2011.
“Producers certainly want to know how low the construction market will go,” said Mark Kallman, a PVC market analyst with Resin Technology Inc. in Fort Worth, Texas. “Some of them have bet heavy on exports and, in retrospect, they made a good decision.”
“Construction will come back, but it's a question of whether that will be in 2012 or 2013, or even 2014,” he added. “And when it comes back it might be in more affordable units like apartments and condos.”
One concern about relying so heavily on exports is the unpredictable nature of so many geopolitical events that could affect PVC demand in Latin America, China or India, Kallman said.
Increased use of natural gas throughout North America also should benefit PVC long-term, since the material uses ethylene as a feedstock. Although no major PVC capacity additions are planned, Kallman said substantial debottlenecks have increased North America's overall PVC capacity by about 5 percent in the last five years.