Feedstock, carbon footprint, demand imbalance disrupt global resin markets

Recent strategic moves by resin makers could change the look of the global materials market, especially in Europe.

Earlier this month, LyondellBasell Industries of Houston launched a strategic review of assets of its European olefins and polyolefins, intermediates and derivatives business units. Officials said the assessment will evaluate those assets "through the lens of the company's strategy" to grow and upgrade its core businesses.

The assessment also will be aimed at building a circular and low-carbon-solutions business and improve performance and culture, they added.

Higher costs for energy and other operating costs in Europe already led LYB late last year to close a polypropylene resin unit in Italy, removing more than a half-billion pounds of annual production capacity from the market. That closing affected one of LYB's two PP production units in Brindisi. Officials said that unit was the oldest of its kind in the world and had become uncompetitive.

Trinseo of Wayne, Pa., has been trying to sell its styrenics unit since early 2022. That unit includes polystyrene resin plants in Belgium, Germany, Hong Kong and Indonesia and styrene monomer plants in Germany and the Netherlands, as well as Trinseo's 50 percent ownership of North American PS maker Americas Styrenics LLC, which was included in the original sales attempt.

AmSty — based in The Woodlands, Texas — is a joint venture between Trinseo and Chevron Phillips Chemical Co. The firm is one of North America's largest PS makers, operating five PS resin plants in the U.S., as well as one in Colombia and a styrene monomer unit in St. James, La.

In 2023, Trinseo closed a styrene monomer plant in Terneuzen, Netherlands. The firm now purchases all of its styrene needs from third-party suppliers to support its downstream businesses. Trinseo also recently announced the closing of a polycarbonate resin unit in Stade, Germany.

While Europe struggles, market watchers such as John Richardson of ICIS have observed that China's economy and plastics consumption are recovering from the COVID pandemic at a slower pace than expected. That country — the world's largest plastics consumer — also is moving closer to self-sufficiency on resin production.

And since 2021, Shell Chemical and Nova Chemicals each have added polyethylene resin capacity in North America, while new entry Heartland Polymers has done the same with PP resin.

One key raw material factor in North America and the Middle East is the availability of low-cost natural gas, which can be used to make ethane and then PE feedstock ethylene. European petrochemical firms don't have as much access to low-priced natural gas and, as a result, use higher-priced crude oil as a feedstock.

It all creates a tangled web, even for market analysts such as Phil Karig, Esteban Sagel and Howard Rappaport.

Karig, principal of Mathelin Bay Associates in St. Louis, said that with large amounts of new PE capacity set to come online in the Middle East and in China, many high-cost PE makers, especially in Europe, "will find themselves on the losing end of a game of musical chairs."

He added that, at the same time, China will be replacing a large portion of their imports with domestic production and then subsidizing PE exports "if that's what it takes to keep from flooding the Chinese market."

For resins such as PS, that don't enjoy the same level of cost advantage in North America that PE does, the outlook is "grim, with negative volume growth due to competition from competing resins such as [PP], high costs and export opportunities strongly limited by low-cost producers in areas such as the Mideast," Karig said.

Sagel, principal with Chemical & Polymer Market Consultants in Houston, said that recent resin market moves "tell you how complicated the situation is in general, but how particularly complicated it is for certain parts of the world."

"The economics of naphtha-integrated assets [based on crude oil] are as negative as they can be," he added. "Simply put, some companies are bleeding money and there is no end in sight."

Ethane integrated assets based on natural gas have seen their margins drop, Sagel said, but they're still producing positive margins. He added that even assets that use imported ethane "are margin-neutral or are generating some positive net income."

Rappaport, a market analyst with StoneX in New York, said that the energy/petrochemical industrial complex "has a long history of cyclical consolidation and diversification."

"Some [cycles] are driven by the desire for further upstream or downstream integration, while others may be driven by the decision to divest assets … which are no longer strategic or profitable," Rappaport said.

"In some cases, a change in senior management or business strategy may also influence these major moves on the chess board.

"Additionally, there may simply be beneficial financial drivers behind the purchase or sale of these businesses, as well as potentially a willing seller and buyer. Another consideration may also be the long-term view of senior leadership that the industry may be reaching a turning point, such as 'peak oil' or 'peak plastics.' As the industry transitions from a linear model to a more sustainable or circular model, a tremendous amount of investment is required, which means spending large amounts of capital," he added.

Karig explained that, overall, the global petrochemical market is divided along costs, domestic and adjacent geographic resin market sizes and degree of market subsidies, such as emphasis on promoting domestic employment.

For North American PE, he said that costs are low and local and adjacent markets are large and bolstered by exports to higher-cost markets, while resin producers operate in a marketplace with few or no subsidies.

China, on the other hand, doesn't have particularly favorable resin costs, Karig said, but it does have a large domestic resin market and a willingness to subsidize producers.

In the Middle East, costs are low and the local market is small, he added, but the large European market is nearby and subsidies to support local resin processing are important to provide jobs in support of social stability.

Europe has a large local market that operates with a moderate amount of subsidies, Karig said, but European resin producers are mainly high cost.