Resin buyers, makers take a wild ride in 2022

North American resin markets entered 2022 looking for post-COVID calm, but by the end of the year they were still looking.

Through October, polyethylene prices in the region were down a net of 2 cents for the year. That's as calm as it gets for regional resin markets. Other commodities were far more volatile.

PET bottle resin prices surged 22 cents since January, with polystyrene up 18 cents since February. Regional prices for polypropylene and PVC went in the other direction, with PP down 36 cents and PVC down 19 cents.

The PE market largely followed trends in the U.S. economy, with PET and PS boosted by feedstock trends. PP conversely was lowered by a feedstock trend and PVC was affected by a drop in construction demand.

Most recently, PE makers have been able to hold prices flat by reducing production and increasing the amount exported from North America. These moves were able to counteract drops in domestic demand caused by an economic slowdown.

PE giant Dow Inc. in late August announced plans to temporarily reduce global nameplate capacity for PE by approximately 15 percent. Other PE makers unofficially reduced production as well.

In a letter to customers, Dow Packaging and Specialty Plastics President Diego Donoso said the cutback was tied to "continued global logistics constraints," including port and rail congestions in the U.S. Gulf Coast and "dynamic conditions" in Europe. Dow operates about 17 billion pounds of global PE capacity, including about 7 billion pounds in the U.S. Taking out 15 percent of capacity removed about 2.6 billion pounds from production, roughly the equivalent of one world-scale PE unit.

Even with recent PE prices flat, the industry has been active. In November, Shell Chemical announced the start of production at its massive 3.5 billion-pound-capacity PE unit in Monaca, Pa., near Pittsburgh. It's the first major PE manufacturing complex in the Northeastern U.S. and the first U.S. plant built outside of the Gulf Coast in at least 40 years.

The complex is located within a 700-mile radius of 70 percent of the U.S. PE market. The 384-acre site has contracted most of its natural gas feedstock from the nearby Utica and Marcellus basins. The complex is expected to reach full production rates in the second half of 2023.

High and linear low density PE resins made at the site will serve customers that make commodity and specialty films, pipe, blow molded containers and injection molded parts.

Around the same time the Shell plant came online, Chevron Phillips Chemical Co. and QatarEnergy announced the formation of Golden Triangle Polymers Co. LLC, a JV that will spend $8.5 billion to build a petrochemicals complex in Orange, Texas. Construction will begin immediately on the project, with operations expected to begin in 2026. The complex will have two HDPE lines, each with annual capacity of 2.2 billion pounds, and an ethane cracker with annual capacity more than 4.5 billion pounds.

The Golden Triangle plant will produce HDPE resins for durable goods like pipe for natural gas and water delivery, recreational products and packaging to protect and preserve food.

Access to low-priced natural gas has allowed North American PE makers to add billions of pounds of capacity in the last decade. Large amounts of this new capacity is being exported, since the amount being added far exceeds what's needed to meet North American PE demand growth.

Market veteran Howard Rappaport, a senior adviser with StoneX Financial, said that although large amounts of PE continue to be added in North America, it's "quite likely" that the economic climate in the U.S. will have improved sufficiently by the time the CP Chem JV capacity comes on to sustain a level of PE consumption more in line with historical norms.

Esteban Sagel, principal at Chemical and Polymer Consultants in Houston, said the industry "needs to look at this announcement from a countercyclical point of view. … By 2026, it's likely that we'll be in the upswing side of the cycle, which is exactly when you want to start a new plant."

As in past years, the PP market was whipsawed by prices for polymer-grade propylene (PGP) monomer, sending prices down 36 cents through October. The PGP market has been so chaotic that suppliers in October couldn't even reach a formal price settlement.

Strong North American gasoline demand increased midyear supplies of propylene, which is a byproduct of gas refining. As a result, an abundance of propylene was available at a time when PP demand was leveling off. Sagel added that with logistics costs sharply lower than earlier in the year, PP imports began to reach North America, also affecting the demand picture for domestic suppliers.

On the capacity front, new PP supplier Heartland Polymers recently began production of homopolymer resin at a plant in Strathcona County, Alberta. Heartland is expected to produce more than 1 billion pounds of PP annually.

As of September, consulting firm C-MACC of Houston said that "given high prices and still lofty relative PP-to-feedstock spreads, U.S. producers appear to [have] not pulled back production alongside the startup of [Heartland]."

"This has resulted in domestic [PP] inventories rising and …more new capacity is coming in the near term" from ExxonMobil Chemical, the firm added.

PVC prices tumbled 19 cents through October, as higher interest rates cast shadows on the housing market, a major source of PVC demand. U.S. housing starts in September actually were up more than 1 percent vs. August, but they were down more than 7 percent vs. July and more than 3 percent vs. September 2021. As a result, the PVC market was affected by both higher inventories and lower seasonal demand.

In a recent news release, the National Association of Home Builders said builder sentiment had declined for 10 consecutive months.

NAHB Chief Economist Robert Dietz said the best way to reduce housing costs is to boost supply.

"Policymakers must prioritize fixing building material supply chains and easing excessive regulations to help bring down construction costs and enable homebuilders to increase housing production," he added.

Longer term, Vinyl Institute President and CEO Ned Monroe told Plastics News that he sees continued growth for U.S. PVC resin into 2023. VI is a Washington-based trade group.

"We manufacture the highest-quality PVC globally and continue to produce it at a competitive price due to the abundance of U.S. natural gas," Monroe said.

Prices in 2022 for PET bottle resin and PS resins were impacted by benzene feedstock. A surge in U.S. gasoline prices — due in part to the impact of the Ukraine conflict on global energy markets — sent prices for benzene soaring midyear. Benzene is added to gas to increase its octane rating, which can improve engine performance.

As gasoline prices declined, benzene did as well, but PET (up 22 cents) and PS (up 18 cents) have held on to part of those price gains.

Strong seasonal demand for bottled water and other beverages played a role in earlier PET price increases, as well as a lack of new capacity and freight and logistics challenges. Bottled water, according to a report from Beverage Marketing Corp., became the largest U.S. beverage category in 2021. BMC added that "unprecedented" input cost increases "may put a damper" on beverage volume growth in 2022.

In July, Corpus Christi Polymers LLC — a partnership among materials firms Indorama Ventures of Thailand, Far Eastern New Century of Taiwan and Alpek SAB de CV of Mexico — said they would resume work on a major PET unit in Corpus Christi, Texas, with production set to begin in 2025.

The new production "will ensure continued cost-competitive production to support the growth of global PET operations into the next decade," officials added. The plant will have annual production capacity of 2.4 billion pounds of PET and 2.9 billion pounds of purified terephthalic acid (PTA) feedstock.

CCP was formed in 2018 following the $1.1 billion purchase of a partially constructed facility from M&G Group of Italy. Each partner will procure its own raw materials and receive one-third of the PTA and PET produced at the facility to sell and distribute independently.

PS prices also have followed benzene, which is used to make styrene monomer. One market watcher said U.S. PS makers in the second half increased inventory levels by 10 million pounds in total, sending prices lower.

According to consulting firm PetroChem Wire in Houston, 10-15 percent of U.S. Gulf Coast benzene production was out earlier in the year for various reasons. These supply issues were partly covered up by styrene outages in the first half of the year, which reduced benzene demand.

Food packaging and foodservice remained the largest end markets for PS in 2022. No new North American capacity additions are planned in the near future.

Prices for building block feedstocks oil and natural gas also saw their share of volatility in 2022. West Texas Intermediate oil prices began the year around $75 per barrel before soaring to $115 in late February when the Ukraine crisis hit. Prices peaked at $121 in early June before beginning to fall, reaching $79 in late September. They then had another upward surge to $93 in late October before receding to $76 — roughly where they started the year — in early trading Nov. 28.

Markets for natural gas — used as a PE and PVC feedstock — started 2022 at $3.70 per million British thermal units before ballooning to $9.30 in early June. Prices then fell to $5.40 by the end of that month before again zooming to $9.70 by late August. Another decline took prices to $4.95 in late October, before a new increase had prices close at just over $7 — up almost 90 percent from the start of the year — on Nov. 25.

At a broader level, the U.S. plastics industry is expected to continue to grow in 2022 as it recovers from a pandemic-related decline in 2020. U.S. plastics shipments are on track to grow 1.8 percent in 2022 after growing 1.2 percent to $468 billion in 2021 and declining 0.9 percent in 2020, according to the Plastics Industry Association in Washington. The industry also climbed from the country's eighth-largest industry in 2020 to No. 6 on that list in 2021, based on the value of shipments.

Globally, PE made up 36 percent of the global resin market in 2021, with polypropylene at 24 percent and PVC at 16 percent, according to consulting firm AMI in Bristol, England.

Global plastic materials demand is expected to grow 2.5 percent per year from 2021 to 2025 and 1.9 percent per year from 2025 to 2030, AMI added. Recycled resin also is growing faster as a percentage of total demand.

China is expected to account for 40 percent of global plastics demand by 2030, with North America next at 13 percent.