Chicago — A whole bunch of new polyethylene resin is heading toward North American buyers, but users of polypropylene will have to wait a while longer.
That was the word from resin market analysts Mike Burns and Scott Newell at the Plastics News Financial Summit 2017, June 9 in Chicago. Both Burns and Newell are with Resin Technology Inc. in Fort Worth, Texas.
"[PE] is oversupplied globally, and that has the biggest impact on price," said Burns. "North America has to export 20 percent of the polyethylene it makes to stay balanced.
"Our costs are so cheap that feedstocks don't drive PE pricing," he added. "It's driven by things like unplanned outages and supply dumps."
The market will be tested by a 20 percent increase in North American capacity in the next two to three years. "We're adding a lot of capacity, but demand isn't growing 5 percent globally," Burns said.
Extreme price moves can be challenging, he added, since a price hike of 10 percent in North American PE resin prices will lead retailers to buy bags of plastic from China instead of sourcing them locally.
"The big question is how will low-cost North American [PE] suppliers respond to oversupply and having to compete with other oversupplied regions," Burns explained. Almost two-thirds of current U.S. PE resin exports go to Mexico and Latin America.
In the shorter term, the North American PE resin market could see another 3 cents in price erosion in the next 60 to 90 days, Burns said, although he pointed out that PE prices in the region haven't declined during the summer months of July and August in the last decade.
The PP market is taking a different route, since not much new capacity is anticipated in the near future.
The cost push that buyers saw in early 2017 — when prices rose more than 20 percent — was reminiscent of the market of a few years ago when propylene feedstock led the flow of prices, Newell said.
"There are some signs that demand is improving, with prices back down," he added.
North American PP operating rates were around 90 percent in 2016 and 2017, down slightly from 92 percent in 2015. The market is expected to have added a total of between 500 million and 700 million pounds of new capacity through debottleneckings in 2016-17, according to Newell.
New propylene capacity via propane dehydrogenation (PDH) could provide a basis for future PP expansions. Enterprise Products is adding 1.6 billion pounds of annual capacity in Mont Belvieu, Texas, in July.
On the PP side, Formosa Plastics Corp. USA will add 550 million pounds of annual capacity in Point Comfort, Texas, in 2019, with Braskem SA on track to boost capacity by 1 billion pounds in Laporte, Texas, in the 2019-20 time frame.
"If demand grows at 2.4 percent and the market is operating at 95 percent capacity, we'll need new capacity as demand grows," Newell explained. "As it is, the [PP] market should be relatively tight for the next three years; it's all about demand."