Chicago — That long-expected wave of new polyethylene capacity is getting closer to crashing on North American shores.
And while polypropylene in the region isn't seeing the same boost, producers are seeing better profits after several lean years.
That was the word from Global Plastics Summit 2015, a conference co-hosted by consulting firm IHS and the Society of the Plastics Industry Inc., Oct. 29-30 in Chicago. IHS analyst Nick Vafiadis tackled PE, while his colleague Joel Morales handled PP.
“The industry is on the cusp of change,” Vafiadis said. “If you're a seller, you're going to see increased competition, more capacity chasing demand and price and margin pressure. If you're a buyer, you're going to see more supply options, increased competition and increased quality demands.”
North America is expected to add more than 4 billion pounds of new PE capacity by the end of 2016 in the form of new projects from the Braskem Idesa joint venture in Mexico, the Ineos/Sasol joint venture in Texas and Nova Chemicals in Alberta, Canada. Those will be followed in 2017 with more than 6 billion pounds of new PE capacity on the U.S. Gulf Coast from Dow Chemical Co., ExxonMobil Chemical and ChevronPhillips Chemical.
Overall, 27 PE expansions have been announced for North America. If they all come to fruition, they'll add more than 34 billion pounds of capacity — a 75 percent jump over current capacity of roughly 45 billion pounds.
“There's a rush to add capacity,” Vafiadis said. “It's been incredible to see.”
New entrants to the North American PE field — including Sasol Ltd. of South Africa and possibly Saudi Basic Industries Corp. of Saudi Arabia — also are seeking a North American customer base. Vafiadis said that PE buyers in the region will use these new players to get leverage vs. incumbent supplier. “That's just the way it works,” he said.
Those incumbent suppliers then will strive to protect market share, putting pressure on PE prices and profit margins, Vafiadis added.
In the near-term, Vafiadis said the regional PE prices should be flat through the end of 2015, with tight production and higher feedstock costs making a 3-cent-per-pound price hike likely in March. But with new capacity coming on in the second quarter, prices may fall as much as 5 cents.
On the PP front, Morales said that the oil price crash in the second half of 2014 has led to accelerated PP growth by lowering prices for that resin.
“Low prices stimulated demand, and that resulted in higher margins,” he said, adding that North American PP operating rates should be above 90 percent through 2020.
Regional PP makers have added 14 cents of margin so far in 2015 by widening the gap between resin and propylene monomer. No new capacity is expected in the region until Formosa Plastics Corp. USA brings on almost 1 billion pounds in Texas. As a result, imports will be needed to meet new demand.
By 2016, North America should be importing more PP than it's exporting. PP imports next year are expected to be more than 600 million pounds — more than triple their rate from a decade ago.
As a result, Morales said, PP buyers in the region may have to deal with payment terms, lead times and other import-related issues.
