A tumultuous first half might yield to a smoother second half for North American polyethylene, polypropylene, PVC and nylon markets.
At a recent interview in Houston, officials with the IHS Chemical consulting firm shared their outlooks for each of these materials. In PE, market analyst Nick Vafiadis said that regional demand could finish the year with low-single-digit growth.
“We've seen the overall dampening effect of the global economy,” he explained. “There's been some renewed strength in export markets, but we expect domestic demand to grow at less than [gross domestic product] rates in 2012 and 2013.”
Through May, sales of high density PE within the U.S. and Canada were up about 1 percent, while linear low density PE sales essentially were flat and LDPE sales were down 3 percent, according to the American Chemistry Council in Washington.
Recent PE price decreases also might be coming to an end, with spot prices for ethylene feedstock trending upward, Vafiadis added. “People are buying again because of low prices, but it's a question of how sustainable it is,” he said. “it could be pent-up demand, or it could be inventory-and price-related.”
Longer-term, Vafiadis said the export market will have to rev up to handle new PE capacity that's in the works because of newfound supplies of natural gas throughout North America.
“We're assuming as much as 8 million tons [almost 18 billion pounds] of new polyethylene capacity in the next few years,” he added. “That [material] would have to go to export markets. There's no way the domestic market can absorb that much capacity.
“PVC could be a model for polyethylene exports, since they're already doing that to some degree. As the energy advantage develops, [North America] will be in good shape because of advantaged production costs.”
As has been the case in recent years, the 2012 North American PP market has had all of the intrigue of a spy novel. Prices shot up 22 cents per pound in the first four months of the year, only to tumble down 25 cents in the next two months.
“The year started with low prices, which led to some buying,” said market analyst Esteban Sagel. “Then there were incredible [price] increases until buyers had sufficient inventory that they could stay away from the market. Prices peaked and came down.”
Even recent improvements in PP demand are tough to assess, he added, since much of that growth is coming from distributors and traders — buyers who don't convert the material into finished products. Through May, overall U.S./Canadian PP sales were up 2 percent, with domestic sales up almost 4 percent.
And although the natural gas boom has hurt propylene supplies so far — since that material produces less propylene than crude oil does — Sagel said that help is on the way in the form of numerous propane dehydrogenation projects that will make on-purpose propylene. Dow Chemical Co. and several other firms are making such moves, with the first project set to come online in 2016.
Sagel added that Braskem SA's recent acquisition of propylene splitter assets next to its PP plant in Marcus Hook, Pa., was “very important” and “a move in the right direction.” Sunoco Inc. — which sold the PP plant to Braskem last year — had planned to close the splitter, as well as an adjacent refinery. Braskem now can produce its own propylene there after buying raw material from other suppliers.
North American PVC makers will continue to rely on export sales, according to market analyst Steve Brien, although domestic demand “is picking up modestly.” Regional PVC demand has suffered in recent years from the collapse of the U.S. housing market, but domestic demand through May was up more than 5 percent.
Brien added that recent PVC prices “may have hit a bottom,” and that there's a possibility that prices for the material could increase again this fall.
“Most of the [price] drop is already in,” he said.
The North American nylon resin market was carried upward in the first half by the impressive rebound of the region's auto industry. North American auto builds were under 10 million per year just a few years ago, but are on pace to approach 15 million in 2012.
This boom has lifted regional nylon resin demand by 8-9 percent in the first half, according to Paul Blanchard, engineering plastics director. Auto remains nylon's largest single end market, with a market share of at least 40 percent.
“There's a lot of pent-up demand for cars,” Blanchard said. “The fleet that's on the road is at a record age. People have been keeping their cars on the highway longer.”
Nylon makers also are continuing to increase the amount of nylon used in each vehicle.
“They already have a lot of engine covers and intake manifolds,” Blanchard said. “Now they're going after a lot of oil-pan-type applications and high-temperature duct work.”
He cited advanced new materials from DuPont, BASF and Invista, including DuPont's Zytel Plus resin, which “can increase heat-aging performance of parts under the hood.”
