The global market for ethylene and polyethylene is evolving rapidly and South America will be a pace-setter, with producers there able to price comfortably amid one of the highest projected annual demand growth rates in the world, experts say.
Feedstock availability and external factors driving pricing may challenge ethylene and PE producers in the region, but similar challenges can be found in various markets with South American growth potential, from polypropylene to polystyrene, PET and more. Analysts at IHS Inc.'s Latin American Petrochemicals & Polymers Conference, held May 10 in São Paulo, offered their take on where the markets are headed.
South America sported ethylene production capacity last year of 12 billion pounds, 71 percent of which was Brazilian. Capacity additions aren't expected before Braskem Idesa SAPI's Ethylene XXI Mexico plant in 2015 (for which it confirmed $600 million in financing from the Inter-American Development Bank in April), and Dow's sugar-cane-based “green” ethylene project in 2016.
Most regions rely on naphtha as an ethylene feedstock, which prices in step with crude oil. IHS sees naphtha prices remaining high through at least 2016 in every region. In Brazil, drivers choose between ethanol and gasoline at the fuel pump, and record-high ethanol prices in 2011 drove consumption of gasoline, which forced producers like São Paulo-based Braskem SA to import naphtha at higher costs than expected.
Feedstock selection and availability play a major role in regional ethylene prices. South American production is based mainly on heavy feedstocks, and traditionally has one of the three highest cost bases in the world, said Nick Vafiadis, research and analysis director at Englewood, Colo.-based IHS.
PE's global growth potential should average 5 percent over the next five years, driven by South American and northeast Asian economies. South American demand should grow almost 6 percent per year, with “green” PE production in Brazil offering impressive profit potential.
Brazil's PE demand has eclipsed all others in Latin America, averaging 6.2 percent growth over the past five years, with 7.6 billion pounds of demand achievable by 2016, Vafiadis said. Demand from film and sheet lead Latin American end-use consumption with a 5.5 percent growth rate, but aside from extrusion coating, all end-use sectors are growing at a much-higher rate than gross domestic product.
South America remains a net PE importer, with 5.2 billion pounds coming in last year and an average annual growth rate of 6.6 percent expected through 2016. Brazil's PE imports should grow at 9 percent per year, reaching 2.4 billion pounds by 2016.
Braskem is already producing cane-based PE, and a joint venture between Midland, Mich.-based Dow Chemical Co. and Tokyo's Mitsui Chemicals Inc. is under way that will involve both in the entire production process, from the sugar cane field to production line. Braskem said its green PE is already cost-competitive with naphtha, and both Braskem and Dow officials in São Paulo said the product easily draws a premium of 40 percent or more from clients eager for an environmental-marketing edge.
North America's economic woes and price fluctuations over the past five years have reduced demand for PP, and No. 2 market Europe grew by just 0.5 percent over that period. India and northeast Asia lead the PP markets with growth rates of 11 percent and 6 percent, but South American growth is close behind at 5 percent, said Esteban Sagel, PP director at IHS.
Demand destruction is expected to continue in North America over the next five years, while demand growth in Asia, South America and the Middle East should hold steady. Brazil is Latin America's largest PP market by far, and will lead the region in annual growth with a rate above 5 percent through 2016.
IHS projects all South American markets will jointly show 5 percent growth over the next five years, driven by economic prosperity fostering demand for packaging, appliances, cars and infrastructure investment, particularly Brazil's ramp-up to the 2014 World Cup and 2016 Olympics.
But Latin American production will be threatened by Chinese PP finished goods, which increased 23 percent in 2011. Imports to Brazil have risen steadily since 2009, according to IHS, and the Brazilian import rate is probably higher, because figures don't include “partial PP” items like appliances and cars.
“Asian goods are going to keep challenging price and production elsewhere,” said Sagel, who predicts the Americas will hit a net deficit position in 2013.
Only a handful of PP projects are planned now in Latin America, leading IHS to forecast the region's deficit will grow by 1.2 billion pounds over the next five years. A methanol-to-olefins plant in Trinidad and Tobago is being discussed between the government and producers, and the Comperj petrochemical project in Rio de Janeiro could still include PP additions, if feedstock expectations hold course, Sagel said.
Through 2016, major net importers for benzene will be North America and Western Europe, with North America consuming 15 percent of the global supply, sourcing primarily from South America. Brazil has historically been a main benzene exporter to the U.S., said Alex Lidback, IHS product management director.
South America makes up just 3 percent of the global styrene market, roughly 1.8 billion pounds, but PS accounts for 63 percent of the region's end use, compared with 39 percent worldwide. “If PS is growing well [in South America] then it will allow local producers to maintain high operating rates and allow U.S. producers to export to South America,” he said.
South American styrene demand growth should hover around 4 percent per year through 2016. Domestic capacity is limited to a handful of facilities in Argentina and Brazil, making the region an annual net importer of 700 million pounds to 800 million pounds.
Venezuela, Colombia and northeast Brazil drive styrene imports, and 40 percent of all demand is now import-met. Despite new capacity in 2014, Lidback said strong growth will keep the region a net importer.
South America's PS consumption growth is presently on the global low end at 2.8 billion pounds, but growth potential is strong, with consumption expected to top 3.2 billion pounds within a few years. The continent has ample production capacity that has suffered low operating rates for years, Lidback said.
PET chain market
After five years with no regional capacity for purified terephthalic acid, South America should benefit from renewed production late this year, when Petrochemical Co. of Pernambuco (PetroquímicaSuape) could begin producing 128 million pounds of PTA annually at the Suape Port and Industrial Complex in Ipojuca, Brazil. The project, led by Petróleo Brasileiro SA (Petrobras), would focus on exports in 2012, as downstream polyester production isn't expected there until early 2013. Following that, most of the PTA will be used captively, said Chase Willett, IHS director for PET and raw materials.
The region will still import from Mexico and Asia into Argentina and Mexico to Brazil, despite new Brazilian production. Asia will continue to set prices for PTA globally, Willett said.
Global PET packaging resin demand grew less than 2.2 billion pounds in 2011, below the historical average, with South and Central America contributing less than 15 percent. However, young populations and reliable GDP growth should drive beverage and packaging demand in the region.
PetroquímicaSuape will start a new 900 million-pound PET packaging resin plant in early 2013 in northeastern Brazil, adding a third producer to a region that remains undersupplied, and open to North American and Asian imports.
“PET will be a market that's globally priced but regionally sourced, with little trade in the future,” Willett said. “Central and South America in the future will also be even bigger targets of exporters.”
South America represents only around 2 percent of global ABS demand, which topped 14 billion pounds in 2011. Brazil dominates that with 82 percent of the region's consumption, which totaled 208 million pounds last year.
There's virtually no ABS capacity in the region now, and most imports come from Asia, Mexico, Western Europe and the U.S. Two new plants have been announced and a third is under construction. Availability of upstream raw materials will be key to the success of this new capacity, said Adrian Beale, IHS senior director for global engineering plastics.
ABS demand growth in South America and Brazil is driven by the expanding middle class's pursuit of appliances and automobiles. Brazilian car sales topped 3 million in 2011, on par or better than sales in Germany, and demand for small motorcycles is rising at a record pace.
“South America is a large and growing import destination for ABS and will continue to be until local capacity is built,” Beale said. “New capacity will displace some but not all import volumes, especially from low-cost regions such as northeast Asia.”
Global PC demand is estimated by IHS to have reached 7 billion pounds, with South America at around 170 million pounds and Brazil at 64 percent of that. Optical media accounted for 34 percent of last year's South American demand, but following global trends, this sector is diminishing while auto and electronics rapidly gain market share.