Mother Nature in 2017 did her part to reduce the impact of the polyethylene wave on North America.
At the same time, the regional polypropylene market might be preparing for a wave of its own.
"The polyethylene industry faced two storms this year: Hurricane Harvey and the capacity storm," Nick Vafiadis said at Global Plastics Summit 2017. "We rode out the initial impact, but there could be a second impact that's longer lasting."
Prior to Harvey hitting the Texas coast in late August, there was perception in the regional PE market that producers would have less leverage because of new capacity coming on, according to Vafiadis, vice president of global polyolefins and plastics for GPS co-host IHS Markit. Regional PE processors also had lowered their inventories in expectation of lower prices, he added, and international markets also were anticipating the arrival of new resin.
The impact of the hurricane led to delayed starts or lowered production from several PE makers, including Chevron Phillips Chemical Co., which had operational problems at its Cedar Bayou complex. As a result, a market that was expecting price reductions of 6 cents per pound between August and October instead saw prices rise an average of 10 cents. Harvey-related issues could keep regional PE prices and margins high through the first quarter of 2018, Vafiadis said.
In the longer term, North American PE is in the midst of a surge that will see more than 25 billion pounds of annual capacity added to a base of about 65 billion pounds between 2017 and 2022. This ballooning of capacity has been made possible by newfound supplies of natural gas throughout North America.
"Capacity growth will continue to surpass demand growth in 2017 and 2018," Vafiadis said. "And North American exports should triple, with China accounting for more than 50 percent of that amount."
China's National Sword program, which is limiting imports of recycled plastics from other countries, could lead to increased demand for virgin resin.
Vafiadis added that metallocene-based PE resins should play a larger role in the packaging and film markets. Metallocenes are becoming more of a commodity and should account for 30 percent of linear low density PE growth through 2022.
PE market veteran Diego Donoso of DowDuPont Inc. said in a recent phone interview that global demand and the impact of Harvey changed expectations for the 2017 PE field.
"We didn't really see the tsunami of production that was expected," said Donoso, who serves as packaging and specialty plastics business president for global materials giant DowDuPont. "And it was a very good year for polyethylene growth. North America saw GDP-level growth, while we saw double-digit growth in India, China and Southeast Asia."
Donoso added that brand owners and PE processors globally are optimistic about their own businesses and about new resin capacity being added worldwide. For its part, DowDuPont recently added a specialty PE line with almost 900 million pounds of annual capacity in Freeport, Texas. Between 9 billion and 11 billion pounds of new PE demand are created globally each year from a variety of applications, Donoso said.
"We're seeing a lot of markets like India that are in the infancy of their use of packaging," he explained. "There's growth in everything from milk and water pouches to infrastructure and pipes."
He added that U.S. brand owners are making "a lot of capital investments" and are asking DowDuPont how they can design their products for sustainability. "They're reviewing designs to make their products more recyclable," Donoso said. "Millennials are looking for that more."