Solid growth seen by most commodity resins in 2018

For most North American commodity resins, 2018 was a good year.

U.S./Canadian high and linear low density PE sales reported major growth in 2018, according to the American Chemistry Council, resulting from larger amounts of new capacity being sold into the export markets as well as domestic sales that have grown at strong rates.

HDPE sales in the region were up 12 percent for the year, according to ACC, with domestic growth of more than 5 percent amplified by export sales growth of more than 42 percent. Domestic HDPE growth for 2018 was led by the pipe and conduit market, where sales surged 14 percent.

In LLDPE, 11-month sales soared more than 24 percent, with domestic sales up almost 5 percent and export sales exploding almost 96 percent. Trash and can liners led domestic LLDPE growth through November, increasing 8 percent. Full-year ACC totals for LLDPE recently were revised, but still showed growth in those end markets.

Regional sales of LDPE grew at lower rates in 2018, rising just over 7 percent. Flat domestic LDPE sales were boosted by a gain of more than 26 percent in exports. Domestic LDPE growth in 2018 was led by food packaging film, which grew more than 4 percent.

PE exports from the U.S. and Canada should remain strong in 2019, according to Esteban Sagel, principal of the Chemical & Polymer Market Consultants consulting firm in Houston.

“We're getting additional [PE] capacity in 2019 and beyond, so we'll see a continuation of that [export] trend,” he said. “We'll have to be creative and ship to other countries besides China because of the tariff situation.”

Sagel added that the cost position of North American PE based on ethane from natural gas — compared to naphtha from crude oil — is an advantage for U.S. PE makers.

“There are many potential factors, including a possible crash in the price of crude oil, but none of them should be sufficiently big enough to cause that [North American] advantage to disappear,” he said.

Consumer confidence also has improved in the region, Sagel added, which should help drive domestic sales of products made from PE.

PE market analyst Paul Bjacek of Accenture Research in Houston said in an email to Plastics News that the renaissance of PE resin used to make plastics “continues to thrive on the cheap shale gas boom in the U.S.”

But he added that as PE production continues to come online from newly expanded chemical plants on the U.S. Gulf Coast, PE makers are changing their export plans.

U.S. exports of HDPE and LLDPE — both of which are under expansion in the U.S. as well as targets of China tariffs — have risen more than 50 percent since October 2016 and have more than doubled in the past five years. But Chinese tariffs have sent U.S.-made PE to rising economies in Vietnam, Malaysia and Indonesia.

Bjacek said that while this is a new trend, it may be relatively short-lived, since new PE plant expansions are expected to come online in Vietnam, Indonesia and Malaysia in the next few years, producing “stiff competition” for U.S. PE exports.

“Now, more than ever, PE producers need to maximize supply chain efficiency as cost curves may be flatter, depending on oil prices, and every bit of cost competitiveness will be needed,” Bjacek added. “They also must keep a close eye on U.S. ports, including the Port of Houston, where pressure to limit large container ships movements could hinder the flow of plastics through the port, raising the cost of moving resin.”

John Richardson of petrochemicals research firm ICIS also recently commented on PE exports in his Asian Chemical Connections blog. China's net PE imports were up around 20 percent in 2018, he wrote, with apparent demand up at least 12 percent.

“There were exceptional reasons why PE bucked the trend of a slowing [Chinese]economy… [but while] Chinese growth in 2019 could still exceed earlier expectations, it will surely moderate,” Richardson added.

The collapse in imports of scrap or recycled PE was one reason for strong 2018 Chinese PE imports, according to Richardson. This was the result of heavy restrictions on imports introduced by the Chinese government from January last year for environmental reasons.

“This led to a big surge in demand for virgin PE resins to replace scrap PE resins for low value end-use applications,” Richardson explained.

Chinese PE demand growth for 2019 is pegged at 4 percent, even in a slowing economy. The continued boom in China will have therefore increased the global PE industry's dependence on China, Richardson said.

“This greater dependence is a major problem for U.S. producers in particular,” he added, “as they are expanding capacity during a period when the trade war threatens to block their exports to China.”

Full-year North American polypropylene sales were down 0.5 percent, according to ACC, with a plunge of more than 30 percent in export sales canceling out an increase of less than 0.5 percent in domestic sales. Among major end markets, sales of PP into sheet were up more than 5 percent in 2019.

But market watchers said regional PP production issues caused a large amount of the resin to be imported into North America during 2018. As a result, true North American PP consumption likely grew 3-4 percent for the year.

“The trend of imports going up happened because less material was available,” Sagel said. “We might continue to see imports.”

He added that volatility in pricing for polymer-grade propylene feedstock — which in turn causes price volatility for PP resin — “is here to stay.”

“We might see new [propylene] capacity from PDH technology,” Sagel said. “But the market still feels snug.”

North American solid polystyrene sales struggled in 2018, dropping almost 5 percent through November. Exports provided a bright spot, growing more than 13 percent and reducing the impact of a 5.5 percent drop in domestic sales.

PS “continues to be burdened by a number of disadvantages…compared to competing polymers such as polyolefins,” market analyst Phil Karig said in an email to Plastics News.

Higher prices are among the structural disadvantages of PS compared to HDPE and PP, said Karig, managing director of the Mathelin Bay Associates consulting firm in St. Louis. PS also is losing market share to PP in large consumer package markets such as yogurt cups, he added, as mainly off-line thermoformed PP cups are growing for performance reasons compared to in-line, fill and seal yogurt cups made of polystyrene.

Perhaps most importantly, according to Karig, PS is often viewed as less recyclable than either PE or PP and there's some amount of consumer confusion between expanded PS used in foam and solid PS used in cups, cutlery and other consumer products.

Looking forward, Karig said that the PS market “is very unlikely to change as long as cost, performance and consumer views all continue to be negative.”

U.S./Canadian PVC sales were solid in 2018, climbing 3 percent vs. the previous year. Domestic PVC sales were flat, but the overall growth rate was bolstered by a jump of 10 percent in export sales.

Among PVC end markets, sales into pipe — which generated 46 percent of domestic demand — were flat, but sales of PVC into extruded windows and doors showed strong growth of almost 27 percent.

In spite of these up and down results, one PVC production executive told Plastics News that domestic demand seemed closer to U.S. GDP level growth of 2-3 percent during 2018.

“Construction [in the United States] has been kind of mediocre,” the executive said. “The skilled labor shortage is hurting us. We need to get into high schools and trade schools for these jobs, but that takes 3 to 4 years.”

U.S, housing starts were expected to finish 2018 at 1.26 million, up almost 5 percent vs. 2017. But projections for 2019 expect lower growth of around 1 percent. The market has recovered slowly from the recession of 2008-13, but housing starts remain well below levels of the late 1990s and early 2000s.

The construction market also has been affected by millennials not getting homes or having smaller families that don't require large houses that use more PVC, the executive added. Many older homeowners also no longer want second homes.

Government spending on infrastructure could boost demand for PVC, the executive said. “We need infrastructure bills that cover water pipe, not just bridges and roads,” he added.

Exports to South America and Vietnam, India and other locations in Asia are expected to be strong in 2019, but, overall, the executive said North American PVC demand growth for 2019 should be right around the 2-3 percent level that's expected of U.S. GDP.