Outlook mixed for PVC, PET and polystyrene

The North American PVC market would be happy if 2017 matched 2016. Elsewhere, as the year draws to a close, the regional PET market is doing OK, while the polystyrene market hopes that better days are ahead.

Through October, PVC was doing better than any other major North American commodity resin. U.S./Canadian PVC sales were up more than 5 percent, according to the American Chemistry Council in Washington.

PVC has seen domestic sales growth of almost 5 percent augmented by a surge of almost 7 percent in exports. Sales into its flagship rigid pipe and tubing sector were up almost 7 percent.

“We're cautiously optimistic about next year,” an executive at a PVC maker said. “There could be some volatility, but in general the market should be up.

“The pipe market has been strong all year,” the executive added. “Siding also has been strong, but it's been a little weaker here at the end.”

The executive also said that pipe and infrastructure could benefit from increased government spending in both the U.S. and Canada in 2017.

The North American PVC market is seeing growth based on housing, especially from single-unit housing that uses more PVC, according to Mark Kallman, a market analyst with Resin Technology Inc. in Fort Worth, Texas.

“For next year, a lot of rhetoric about the [U.S. presidential] election points to infrastructure work and stronger GDP growth,” he said. “There are some good signs there and lots of ethylene [feedstock] coming on, so it could be a good all-around situation.”

Kallman cited home remodelers' use of PVC siding, deck and fencing as a growth area for 2017. Continued low feedstock costs in the region should allow PVC makers like Shintech Inc. to continue to export the material from the U.S. to other parts of the world, he added.

Both Kallman and the PVC executive added that PVC maker Westlake Chemical's recent acquisition of rival Axiall Corp. will continue to affect the regional market in 2017. “You've got cases where Westlake and Axiall were competing, and now their people have to call each other and ask for a quote on material,” the executive said.

Phil Karig, managing director of the Mathelin Bay LLC consulting firm in St. Louis, said that PVC saw “robust demand growth in 2016” as the U.S. housing market remained relatively strong, combined with exports of low cost PVC.

“Absent a total collapse in world oil prices, PVC exports should continue at a healthy clip in 2017,” he added in an email. PVC demand from the housing market will depend on whether higher mortgage interest rates are offset by increases in consumer and business demand related to government spending on infrastructure.

“Beyond exports, as long as the housing market continues to grow, housing related PVC uses in general and PVC pipe in particular will continue to be strong in 2017,” he said.

Karig added that PVC makers are bringing on new capacity “at a more measured rate” than the polyethylene market, and they're not facing “the constant threat of lower cost imports” as is the case in the polypropylene market. As a result, he said, PVC profit margins “are currently more defensible and sustainable” than they are in most of the other major commodity resin markets.

The North American PS market struggled a bit in 2016, with sales through October down almost 1 percent compared to the same period in 2015, according to ACC. Sales into food packaging and food service — its largest end market — were up almost 1 percent.

“We anticipate continued growth in food service applications as polystyrene remains the ideal choice,” said Brad Crocker, president of PS maker Americas Styrenics in The Woodlands, Texas. “It's easy to process and has unique insulating properties that helps keep food safe for consumption.”

He added in an email that AmSty also expects to see 2017 PS growth in North American electronics/appliance demand, as North American production advantages and workforce efficiency will lead to increased PS demand in durable applications.

“The current low crude environment helps to ensure polystyrene remains both the economical and value-added choice for converters,” Crocker said. “Although we can't predict what will happen with benzene in 2017, AmSty will continue to focus on delivering value to our customers through understanding inter-material dynamics, resin supply and demand and inherent product value.”

Market analyst Robin Chesshier of RTI said that PS likely will face some challenging feedstock issues in 2017. “Styrene monomer supply has been very tight for 18 months, and it really hasn't got better,” she said. “For most of [2016], the polystyrene price was moving with the benzene price. But now it looks like it's moving with supply and demand.”

Chesshier added that those conditions have kept PS prices relatively high and that “the longer the [PS] price stays elevated, we could see more processors look to switch to other resins.”

At October's Global Plastics Summit in Chicago, market analyst Priya Ravindranath pointed out that PS remains priced higher than most commodity resins and still is seeing low growth. Global PS demand peaked in 2004, at which point prices went up as a result of similar high prices for benzene feedstock, said Ravindranath, who's with IHS Chemical in Houston.

She added that the North American PS field is seeing some growth in electrical and appliance uses from Mexico. Northeast Asia is seeing some PS demand growth as well, Ravindranath said.

Increased use of shale gas has helped some plastics, she explained, but it's negatively impacted PS by lower benzene production. Lighter feeds like natural gas produce less benzene than heavier feeds like crude oil do.

In spite of these challenges, AmSty's Crocker remains optimistic about 2017. “Going forward, AmSty will continue to focus on the importance of sustainability to our customers and their customers,” he said, adding that the firm “is very excited” about efforts like the Foam Recycling Coalition grant that should increase foam recycling throughout North America.

He's also enthusiastic about and the emergence of plastics-to-feedstocks technologies that offer innovative in-kind recycling solutions for PS.

“Plastics-to-feedstocks seems to have a unique fit with polystyrene and offers a very compelling end-of-life solution,” Crocker said. “With the millennial generation positioned to be the largest generation in U.S. history, sustainability is likely to grow in importance throughout the entire food service value chain.”

On the PET side, resin maker DAK Americas sees 2016 as “a relatively good year” with North American demand growth of 2 to 2.5 percent, according to resins sales and marketing director John Cullen. PET demand from the carbonated soft drink end market — its largest usage — “reached the bottom of the slowdown” in 2015 and was flat in 2016 and should be flat in 2017 as well, he added.

Bottled water demand continues to grow, but resin demand for that application is up only 3 percent because of thinner bottles that use less PET. Even so, he said “consumers are drinking more and more bottled water.”

Demand for PET in custom containers for a variety of foods also is growing, Cullen said.

“There's been a lot of innovation and growth in the custom area for sauces and other products,” he said. “There's been development on food barrier technology vs. glass and some good and innovative designs.”

At the GPS event, IHS Chemical analyst Tison Keel was a bit less optimistic on North American PET growth, seeing annual demand as flat in recent years. North American PET demand “has run its course in replacing glass and aluminum,” he said.

“Consumer preferences are moving away from [carbonated soft drinks]. People are listening to what medical experts are telling them.”

Some market watchers see the North American PET market as oversupplied, but M&G group is adding more than 2 billion pounds of PET capacity in the first half of 2017 at a new plant in Corpus Christi, Texas. Some of the plant's PET output will be shared with Charlotte, N.C.-based DAK.

“We're still seeing 2 to 3 percent growth for a market approaching 10 billion pounds [of demand], so there's a need for new capacity and a need to invest long-term,” Cullen said. In Keel's view, the opening of the Corpus Christi site “will result in a hyper-competitive environment” for North American PET. He also expects some older PET capacity in the region to be closed.

Keel also is seeing a response by North American PET makers to back-integrate into feedstocks in order to improve their supply chain and increase profit. Each of the four remaining firms have made investments into feedstocks since 2010, he said. When M&G completes a new PTA feedstock facility in Corpus Christi, both M&G and DAK will be fully back-integrated, Keel added.

“If we can make raw materials better, that gives us a competitive advantage,” Cullen said. “We've back-integrated for a long time, and now we're seeing Indorama do it and now M&G is following that course. Having more control over cost is an important aspect of the business.”

DAK also has recovered from Hurricane Matthew, which caused its PET production in Fayetteville, N.C., to be down for about two weeks in October. The hurricane “wreaked havoc with the Southeast,” Cullen said. “We got 15 inches of rain in 24 hours in Fayetteville. It eroded the ground under the railroad tracks and we had to bring in 1,200 truckloads of dirt to replace it.”

“Our transportation networks were offline for about a week, but there was no permanent damage to the site and we were able to supply our customers from other locations,” he added.