Petrochemical Report Polyolefins operating rates to improve in 1997/98

World Polypropylene Growth Rates [17204 bytes]

Polyolefins prices peaked in early 1995 and, as a result, expansion plans were announced.

Following the surge, prices and operating rates began a decline that continued through the remainder of the year.

As planned additions come on stream in the next few years, polyolefins markets will likely loosen through 1998, at which time operating rates are expected to begin improving.

Polyethylene

In 1995, world polyethylene capacity was more than 100 billion lb/year (45.5 million mty), according to Don Brady, worldwide polyethylene manager for Phillips Chemical Co., Houston. Phillips' summary of current and projected regional polyethylene capacity is shown in Table 1 [26162 bytes].

Western Europe has the most low-density polyethylene (LDPE) capacity-12.5 billion lb/year. North America leads in linear low-density polyethylene (LLDPE) capacity, with 14.5 billion lb/year, and high-density polyethylene (HDPE) capacity, with 9.6 billion lb/year.

In his presentation at DeWitt & Co. Inc.'s 1996 Petrochemical Review, Mar. 19-21, Houston, Brady predicted that, during the next 5 years, polyethylene capacity will increase by almost 27 billion lb/year. Most of this growth will occur in Asia and the Middle East, primarily in the form of LLDPE swing capacity.

This shift will change the mixture of polyethylene (PE) products dramatically. Brady predicts LLDPE's share of polyethylene capacity will increase from 33.5% in 1995 to 42.0% in 2000. Over the same period, LDPE's share will decrease from 37.8% of total PE capacity to 32.4%, while HDPE's share falls from 28.7% to 25.6%.

The 27 billion lb/year increase in capacity expected by 2000 represents an average annual growth rate of 5%. Of this increase, most will occur in the U.S., China, Western Europe, and Japan, says Brady, although developing regions will have high percentage growth.

If capacity additions materialize as projected, this growth rate will result in a global utilization factor in the low 80% range through 2000. Brady says a more realistic scenario is for a demand growth rate of 7% or more, pushing utilization to 91% by 2000.

A number of new technologies may impact the polyethylene industry outlook in the coming years. Brady's list of these new technologies includes:

Metallocene catalysts, which have the potential to produce new types of linear polyethylenes with unique properties
Super condensed-phase, fluidized bed technology, which may significantly increase reactor capacity and reduce capital costs
Low-density linear polyethylenes, produced in a slurry process, with densities as low as 0.918 g/cu cm
Supercritical diluent, which may change slurry processing parameters
Next-generation catalysts, beyond chromium, Ziegler/Natta, and metallocene technologies, that change molecular structures.

Polypropylene

Of the major thermoplastics, polypropylene (PP) has grown the fastest, according to Robert D. Dennett, Chemical Market Associates Inc. (CMAI), Houston. More than 6 million mty of additional PP capacity is expected to come on stream between 1996 and 1998.

Fig. 1 [55159 bytes] shows CMAI's estimate of PP capacity additions, by region.

More than 40% of the expected increase will be added in the Asia/Pacific region, says Dennett. North America and Western Europe also are increasing their capacities substantially, despite high consumption per capita.

The Middle East is entering the PP business with new export plants slated for Kuwait and Saudi Arabia, says Dennett. And, with new plants planned in Indonesia, Thailand, and the Philippines, these former PP importing countries will become exporters.

In his speech at DeWitt & Co. Inc.'s Petrochemical Review, Tom Sennett, polypropylene product manager for Amoco Polymers, Alpharetta, Ga., said he expects polypropylene to continue its historical pattern of two to three times GNP growth, despite a relatively flat year in 1995. With current market tightness, says Sennett, expected capacity additions will be needed to bring supply and demand into better balance.

For the future, Dennett predicts a decline in operating rates through 1998, followed by market tightening (Fig. 2 [55491 bytes]). CMAI expects the next peak in the business cycle to occur in 2002-2003.

Prices

"Global events have a distinct impact on the polyolefins business," says Robert Bauman, vice-president of polymers for Chem Systems Inc., Tarrytown, N.Y. This can be seen by following polyethylene prices in Asia (Fig. 3 [70567 bytes]).

In 1994, prices peaked at just over $1,000/metric ton-about the same level as the peak that occurred during the Gulf War in 1991. The 1994 crest, however, lasted longer. Polypropylene prices followed a comparable pattern (Fig. 4 [49276 bytes]).

Similarly, U.S. polyethylene prices peaked in the first quarter of 1995, then declined. "Much of this decline was caused by downstream inventory depletion and the solving of many supply-side problems," says Bauman.

The surge had three components, according to Bauman: demand, inventory buildup, and nonproducer exports.

The term "inventory buildup" does not refer to producer inventories, but rather downstream customer inventories in the form of pellets, film, bags, etc. But this is a difficult figure to track.

Chem Systems estimates that downstream inventory levels were very low going into the surge, and that the drawdown had taken place by October 1995.

Regarding nonproducer exports, Bauman has this to say: "Some customers found that, as export prices rose faster and stayed higher than domestic prices, they could make 3-5/lb ($60-100/metric ton) by simply reselling the resin they purchased to a third party (broker, trading company, etc.), which subsequently exported the product.

"This situation also results in an inflated picture of domestic demand," added Bauman, "since the resin producer believes it is a domestic sale, but it is actually an export sale."

Considering these exports, Chem Systems compiled U.S. polyolefins results for 1994 (Table 3 [27075 bytes]). Its analysis also takes into account capacity that was out of service because of feedstock and operating problems.

"The net result," says Bauman, "is that effective operating rates for all polyolefins were about 95%, on average, for the year." (The figures labeled "original" in Table 3 [27075 bytes] represent presurge conditions.)

Inventories were depleted in most of the world during the second and third quarters of 1995. Further complicating the problem, China reduced imports significantly because of corruption at some of its major ports, and export prices declined dramatically.

Although demand had rebounded by the end of 1995, Bauman did not expect prices to stabilize until some time this year, depending on China's actions.

Based on these market factors, Chem Systems has predicted global operating rates for polyethylene and polypropylene (Fig. 5 [49665 bytes]). "Based on capacity commitments to date," says Bauman, "operating rates are expected to begin improving in 1997/1998, with the potential for the true 'fly-up' in 1999-2001."