Plastics market analyst Paul Bjacek has asked a question that's been on the minds of many resin makers: How much North American plastic can Latin America import?
That was the title of a recent blog post from Bjacek, who's with the Accenture consulting firm in Houston. More than 11 billion pounds of new polyethylene capacity are set to open in North America by the end of 2017. And ExxonMobil Chemical and LyondellBasell just last week announced that more is on the way.
These projects will add about 30 percent of capacity to a North American PE market that's growing at a low single-digit rate — leading many market watchers to look to export markets for salvation. And while Bjacek agrees that significant export sales will be needed, he adds that resin makers shouldn't have their hearts set on Latin America as a destination.
“As new polymer capacity comes on-line in the US, Canada and Mexico, producers are hoping that export markets will be strong,” Bjacek wrote. “Unfortunately, the math doesn't bode well for exports to Latin America.
“The traditional export market for U.S. polyethylene has been Latin America and early capacity announcements were based on meeting its polymer shortfall,” he added. “However … Latin American GDP growth since the middle of 2014 has been very disappointing, primarily due to poor world economic growth, political issues in Latin America and the commodities market bust.”
As a result, Bjacek — who worked at Chevron Chemical in the 1990s and now has almost 20 years of consulting experience — suggests that China, India and Africa are good targets for the remaining PE product, which could equal a surplus of 4 million to 6 million tons.
“The main competing exporting region for these markets is the Middle East, which is also expanding in PE,” he wrote. “If all the remaining North American PE went to China, that would account for almost one-third of China's current PE trade deficit.”
It's still amazing to be talking about PE expansions less than 10 years after resin makers were convinced that North America would never again see a new PE production unit. That's what massive shale gas discoveries will do to a market.
But it's clear that all of this much-anticipated new PE capacity will bring with it its own set of challenges.