Thi ChangFor the next 5 years, worldwide polymer demand is expected to increase while prices and margins remain weak.
The polyethylene (PE) and polypropylene (PP) polymers industry will continue to be characterized by too much supply.
This is the general outlook of the international PE and PP industry according to several petrochemical consultants at meetings in Houston:
- Chem Systems Inc., Tarrytown, N.Y., at its annual U.S. Chemical Conference in January
- DeWitt & Co. Inc., Houston, at its annual World Petrochemical Review in March
- Chemical Market Associates Inc. (CMAI), Houston, at its annual World Petrochemical Conference in March.
PE suppy/demandBob Dennett, senior consultant of CMAI, Houston, reported that although low density PE (LDPE) is losing market share to high density PE (HDPE) and linear low density PE (LLDPE), it is not happening as quickly as some experts had expected.
Fig. 1 [73,579 bytes] shows that world LLDPE demand is expected to gain 4% in market share in the next 5 years, HDPE is expected to gain 2%, and LDPE is expected to lose 6%. CMAI's forecast for 2003 is that LDPE will have 28% market share, HDPE 44%, and LLDPE 28%.
World PE demand in 1993 was about 34 million metric tons/year (mty); demand in 1998 was about 45 million mty, and demand in 2003 is expected to be about 62 million mty.
In the U.S., LLDPE's share of the market and growth in market share has been more substantial than that of the world: 38% in 1989 and 56% in 1998.
Fig. 2a [88,803 bytes] shows the outlook for supply and demand of LLDPE and HDPE. These are combined into one chart because most LLDPE capacity is based on swing plants that make both HDPE and LLDPE. U.S. supply and demand for combined LLDPE and HPDE are similar to that for the world.
Fig. 2b shows CMAI's outlook for LDPE. Operating rates for all PEs remain low as a result of oversupply.
Regional PE outlookTim Taylor, PE manager of Phillips Petroleum Co., presented his PE outlook on Asia, the Middle East, West Europe, the Americas, East Europe, and the FSU at the DeWitt World Petrochemical Review.
Today, North America, West Europe, East Europe, and the Middle East are net exporters of PE.
As a result of excess capacity being built in the Middle East, Taylor expects that West Europe will become a small net importer by 2003. Also, China is a targeted recipient of this capacity. The Middle East is expected to remain the largest exporter of PE in the near future.
Latin America and Asia are currently net importers of PE. Taylor expects them to remain so in the next 5 years.
Fig. 3 [58,722 bytes] shows the trade status of several of these regions.
In Asia, Europe, the U.S., and Canada, Taylor encouraged PE producers to look for ways to consolidate their production.
With lowered demand and reduction in tariffs, Asian producers are faced with severe competition because of their high unit costs.
Taylor expects modest capacity growth in Japan and South Korea, the two largest producing countries in the region.
He predicts Japan may even be a net importer in the 2000s. South Korea, on the other hand, has twice as much capacity as consumption, and thus, will be a net exporter for many years.
China is expected to absorb much of the excess capacity, remaining as a net importer in the near future.
Low-cost feedstocks, Taylor emphasized, are necessary for successful PE production in the Middle East. Feedstock costs have risen as more companies invest in the region.
Taylor pointed out that the Middle East is well positioned geographically to serve 60% of the world's demand, which comprises Asia, the Middle East, Africa, and Europe.
The U.S. and West Europe are transitioning from being net exporters to net importers, said Taylor. On West Europe's part, this trend reflects a reining in of new capacity because of the power of the Middle East.
In North America, Canada is capturing an increasing amount of the PE export market because it's costs of production are lower than the U.S.
PP supply/demandFig. 4 [55,917 bytes], presented by Graham Harris, director of Europe and Middle East polyolefins studies, CMAI, London, shows that world PP demand is expected to grow between 1999 and 2005 at a higher rate than supply.
Demand is expected to keep its distance from supply in CMAI's PP outlook. World demand is expected to increase by 6.4%/year, but supply is expected to increase by 6.8%/year.
Fig. 5 [116,541 bytes] shows the demand and supply curves for PP in North America, West Europe, and Southeast Asia. Southeast Asia's curve is dramatic in that, beginning in 1998, production is much higher than demand. This region will thus be a major exporter, looking for an outlet for its excess production.
Most of the extra PP production will be aimed for China. Although China is the major net importer in the Asian area, its demand is limited and it is also adding PP capacity to feed its own demand.
The Middle East, according to Harris, is also a net exporter. With Southeast Asia, it will contribute to keeping PP prices and margins low.
Plant designToday's PE and PP plant's are more than twice as large as they were 10 years ago.
According to Dennett, average-sized grassroots PE plants in 1990 had a capacity of 80,000-100,000 mty. Today, new plants have at least 200,000 mty of capacity.
By 2003, predicted Dennett, 450,000 mty LLDPE/HDPE plants are expected to come on-line to take advantage of economies of scale.
Average PE production capacity by a producer was about 325,000 mty in 1990. In 1998, the average producer produced 510,000 mty. In 2003, CMAI expects this trend to continue-the average producer will be producing more than 600,000 mty.
Although world capacity for PE has increased, the number of producers has not. This is a result of recent consolidations in Japan, West Europe, and the U.S.
TechnologySecond-generation technology, said Robert J. Bauman, vice-president of Chem Systems, will be a larger part of the polyolefins business in the future.
For example, Chem Systems expects metallocene catalysts, which now only make up about 9% of the U.S. LLDPE demand, to make up 35% of the demand in 2005.
To expand the metallocene-based polymers market, costs and processibility need to improve. Taylor expects costs to decrease with increased volume. But changes in polymer structure, he said, would be required to improve the processibility-that is, to lower extrusion pressures and reduce the tendency of melt fracture.
Not only are catalysts changing but processes are changing. Gas-phase technology to polymerize ethylene and propylene are growing in importance next to traditional solution and slurry processes.
Dennett pointed out that gas-phase technologies contributed to about 20% of world PE capacity in 1990 and about 32% in 1998. By 2005, CMAI expects gas-phase technology to comprise 36% of PE production capacity.
Today's slumpDennett called U.S. producers to reduce costs to reap higher margins in the U.S. PE industry. The experience curve has reduced margins to a point that prices are about the same or lower than cash costs. Improvements are not expected to begin until 2001-2003.
Bauman pointed out in his presentation, "Polyolefins: Surviving the Mid-Life Crisis," that PE prices in constant dollars have dramatically decreased. Fig. 6 [36,323 bytes] shows the dip in prices between 1968 and 1998.
To reverse the direction of slipping margins, Harris recounted wise but often unheeded suggestions:
- Control and plan future growth to minimize capacity.
- Invest at the bottom of the cycle.
- Retire old units as new capacity comes on.
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