For the second year in a row, forces beyond my control have required me to miss the IHS Chemical World Petrochemical Conference in Houston. I apologize to Churrasco's restaurant for the loss in revenue.
Luckily, the good folks at IHS have sent along some comments made by Senior Vice President/General Manager Dave Witte, one of the most knowledgeable people in the business. Witte said at this week's event that near-term developments in energy, earnings, and the economy are “flattening” global markets. This in turn will cause capacity additions to decelerate and lead producers to shift from organic investment to M&A.
That sounds pretty good if you're in the M&A world, but not so good if you're one of many companies bringing on new polyethylene resin capacity in these next few years.
Here are a few more of Witte's key points:
• Weak oil prices have flattened cost curves by reducing the competitive advantage of production based on natural gas and natural gas liquids. “While still substantive, the gap between gas-liquid economics and naphtha economics was cut by more than half in just one year,” he said.
• China's turn inward has created opportunities for other low-cost regions to play a greater role in commodity production. During the 2000s, China accounted for an outsize share of chemical industry growth. But the rest of the world surged forward during 2010-15, and IHS expects near parity during 2016-20.
• Witte expects very few project announcements in the near future. “The net effect is that global capacity expansions (measured against existing capacity) drop fairly dramatically beginning this year and rapidly decline below anything seen in the last 15 years,” he said.
• Producers are increasingly focusing their R&D spending on development rather than research. Process technology is a diminishing source of competitive advantage. Instead, producers increasingly differentiate themselves through application know-how.