Experts explain why resin sales are down in a healthy US economy

The economies of the U.S. and Canada posted solid growth in 2014 — even though resin demand in those countries lagged behind.

Most major commodity resins posted full-year sales losses in the U.S. and Canada, even though the economies of both countries grew around 2.5 percent for the year. Among six major commodity resins tracked in the U.S. and Canada by the American Chemistry Council, only low density polyethylene finished 2013 in positive sales territory, eking out an increase of 0.4 percent. Polypropylene — including sales in Mexico — came close to breaking even, but finished down 0.2 percent.

Linear low density PE, high density PE and PVC each saw sales declines for 2014 of between 0.5 percent and 2 percent. Polystyrene — also including Mexican sales — took an even bigger tumble of 3.2 percent.

For PVC and all three grades of PE, domestic sales were up but drops in exports created overall negative results. PP saw the opposite, with higher export sales lifting negative domestic results closer to the break-even level.

ACC does not track sales for PET bottle resin, but market watchers said North American sales of that material also were slightly down in 2014.

These results are in contrast to 2014 gross domestic product (GDP) growth of 2.4 percent in the United States and 2.5 percent in Canada, as those countries continue to recover from the Great Recession of 2007-09.

Resin market veteran Phil Karig said the difference in results likely is the result of economic macro-factors, including the continuing push for increasing recycled resin usage, and for thin-walling or otherwise reducing the amount of resin in various products. He added that it's important to remember that demand for resins and the goods produced with them “are very much a part of global markets.”

“The U.S. and Canadian economies don't exist in a vacuum,” said Karig, managing director of the Mathelin Bay Associates LLC consulting firm in St. Louis. “Many other major parts of the world grew slower or were seeing their economies decelerate in 2014 after a lackluster 2013.”

The euro zone grew at a rate of less than 2 percent in 2014, while Japan's economy actually shrunk and China's growth rate slowed down as well, he explained.

Long-time industry analyst Robert Bauman said it was “too soon to tell” if lower oil, gasoline and resin prices will spur demand growth.

“My belief is that the recent resin price decrease may spur sales, but some of this will be used for rebuilding inventory through the chain,” added Bauman, president of Polymer Consulting International in Spring, Texas. “We won't really know the impact until much later in the year.”

In general, Bauman said he is “a bit pessimistic” on U.S. resin demand growth for several reasons, including the fact that the U.S. market is very mature, with high per capita plastics consumption.

“Essentially, all traditional material substitution has been done,” he explained. “Companies continue to down-gauge film and bottles, and with anti-plastic bag sentiment and legislation; more people are bringing their own bags to the supermarket.”

Bauman also cited imports of plastic products, increased recycled content and smaller bottles for detergents and cleaning product concentrates as factors that could affect U.S. resin demand.

“I'm not that positive that we will see true [demand] growth above 3 percent,” he said. “But even at 3-5 percent growth, the amount of new [resin] capacity coming on stream during the next few years will greatly exceed domestic demand growth, creating an acute oversupply.”