RESIN OUTLOOK 2009: UNCERTAIN TIMES
A ttendees of the 2008 Canadian Plastics Resin Outlook Conference in October could not but be aware that the year just behind them had been particularly difficult. Crude oil prices have doubled in the...
Attendees of the 2008 Canadian Plastics Resin Outlook Conference in October could not but be aware that the year just behind them had been particularly difficult. Crude oil prices have doubled in the past 12 months, with considerable impact on petrochemical feedstock prices. Adding to this, the value of the Canadian dollar has risen dramatically, at one point briefly exceeding parity with U. S. currency. Finally, the American economy has slowed, with defaults in subprime mortgages triggering turmoil in North America’s financial markets.
Given these and other seismic shifts in the business bedrock, it’s safe to say every conference attendee had questions about resin prices for the year to come. The answer, according to forecasts delivered by a wide range of industry experts, is mixed. Prices will fall for some, but not all, of the commodity and engineering resins during 2009 and beyond, and resin markets will expand or contract according to a variety of factors.
With all eyes on the U. S. economy these days, Paul Ferley, assistant chief economist at RBC Financial Group in Toronto, forecast a period of weak growth ahead for that country.
The good news, Ferley said, is that aggressive policy actions by the U. S. government should prevent any sustained declines. “Also, hints of a stabilization in U. S. housing sales provide a hopeful sign that the housing market decline has reached its trough, and rising housing prices would facilitate a recovery in financial markets,” he explained.
Ferley forecast a real U. S. GDP growth of approximately two per cent for the end of 2009.
Turning to Canada, Ferley suggested the Canadian economy ultimately would weather the U. S. slowdown. “Energy prices will remain high historically, as concerns about oil supply ease only slightly,” he said. “Demand from emerging markets will remain strong, keeping non-energy commodity prices high.”
The strong Canadian dollar and high export prices have been weighing on net exports, Ferley also said, with the restraint from net exports further aggravated by weak U. S. growth near term.
“In contrast to the U. S., housing construction in Canada is holding up well,” Ferley said. “Canadian housing prices are starting to move lower, however, mirroring those in the U. S., and Canadian housing starts will slow significantly in 2009.”
Canada’s real GDP growth is forecast for approximately 2.5 per cent by the end of 2009. “To ensure this weak growth is short-lived, the Bank of Canada is expected to keep interest rates low,” he explained. “A moderate pace of growth will keep the unemployment rate out of inflationary territory.”
Coming off its near-historic rise to above parity in early 2008, the value of the Canadian dollar will fall throughout 2009 to approximately US$0.90 by the end of that year, Ferley concluded, due to a rebound in U. S. growth, and moderation in commodity prices.
One of the most popular of today’s resins, polypropylene (PP) is used in such products as appliances, automotive parts, diapers, food packaging, housewares, and medical components. Notwithstanding this, PP capacity is actually on the decline in North America, according to Shannon Schneider, a polymer consultant with Houston, Tex.-based Nexant ChemSystems. “This is the first time since 1980 that capacity in the U. S. and Canada has declined from the previous year with no prospects for additional capacity,” she said. Substantial amounts of new capacity are, however, expected in Brazil, China, the Middle East, and Venezuela.
Polyethylene (PE) operating rates were high in 2008, and should continue so throughout 2009, according to Schneider. “Globally, companies have been operating close to effective capacity,” she said. “Significant changes in investment and trade patterns have and will continue to occur, and additional industry consolidation is expected.” North American PE capacity has declined over the past several years, she continued, and at present no new PE plants are being built in developed countries; the shift is to construction in the Middle East, China and Latin America. About three million tons per year of new capacity is scheduled for 2009, she said. “In the longer term, too much capacity will severely impact profitability, but accelerate demand growth.”
Canada will continue to be a net exporter of PE in 2009, Schneider said.
In 2009, she continued, domestic polyolefins demand will decline by between one and five per cent. North American poly-olefin exports are expected to decline by 10 to 20 per cent by the end of 2009. “Polyolefin prices will decline throughout 2009, but By Exactly How Much Is Difficult To Quantify,” she concluded. “We predict continuing declines in crude oil and stable U. S. natural gas prices, resulting in pressured polyolefin prices.”
Additionally, large LLDPE and HDPE deficits are projected through 2009 unless substantial new capacity is achieved, but LDPE exports will continue, albeit at a declining rate.
While not garnering as much attention as Katrina, Hurricanes Gustav and Ike caused production disruptions that will impact styrenics pricing in 2009, according to Peter Feng, director of styrenics with Chemical Marketing Associates Inc. (CMAI), in Houston.
As polybutadiene rubber prices have gone up, the cost of that incremental rubber into the feedstock has increased the cost of making high impact polystyrene. The net price of polystyrene (PS) reached a high of almost US$0.80 per lb. in 2007 and 2008. Prices should have fallen, Feng said, but were kept high as a result of the hurricanes. “Now there is an extended period of high pricing, but this will be behind us soon, and prices will come down,” he explained. The price of PS rose in North America as a result of the hurricanes, but not in Europe and Asia. “As a result, there are large regional differentials that have built up,” Feng said. “Imports are now coming in and this will balance out the supply and demand picture.”
Demand for PS continues to slow, due not only to high and volatile prices, but also substitution by paper, PP and polythylene terephthalate (PET), changing fashions and technology, and improved recycling programs.
Turning to styrene, Feng noted that styrene production is undergoing a transformation, as more production plants in the Middle East come onstream. “There is very little demand for styrene in the Middle East, so that region will begin exporting,” he said. “This will drop the operating rates in North America going into 2010.”
The key determinant for much of resin pricing lies in benzene, an important precursor to styrenics, nylon and polycarbonate (PC). Benzene has hit new highs, but margins have eased.
Butadiene tightness will continue to affect supply during 2009, Feng said. The main market for butadiene is tires, especially replacement tires. “This is a real area of growth as Asia and India adopt automobile-centred lifestyles,” he noted.
The PET market in North America is maturing but still growing, according to Landon Feller, markets reporter with Houston-based ICIS. PET growth was double that of the U. S. real GDP in 2008, he said, and total North American production in that year was 10 billion lbs. As of 2008, North American capacity utilization had reached 90 per cent.
In 2005, raw PET prices spiked as a result of Gulf Coast hurricane activity. Three years later, the U. S. raw material supply is seeing similar impact from Hurricanes Gustov and Ike, with prices only now beginning to come down. The price of PET reached US$0.88 per lb., Feller said, which was 25 per cent higher than the average U. S. PET contract price for the preceding 10 years. “This is a trend most participants believe is going to be long term,” Feller said. “It may be a long time, if ever, before we see PET in the US$0.50 per lb. range.”
Going forward, Feller sees a vast Asian oversupply situation developing
as North America produces more of its own PET material. The result will be a highly regionalized industry, but also an influx of Asian-made PET, marked by slightly lower prices. “Over the long term, we are looking at flat US$0.75 to US$0.90 cent per pound for bottle grade PET in North America,” Feller said. As of September 2008, the 10-year average PET price was US$0.70 per lb., Feller said, and the price of PET throughout 2009 should hover at approximately US$0.66 cents per lb.
Challenges facing the PET industry include lower growth levels caused by a weakness in the macro economy. “Also, fears of chemical leaching in products, the growing recycling market, and lightweighting have definitely put a dent in PET resin sales,” Feller said. “This will continue into the next three years.” In particular, lightweighting — reductions in the amount of PET plastic in products such as bottles — will have an impact on the market, Feller said. “Producers in the U. S. believe that the majority of the impact of this movement will be seen in 2009 and 2010,” he explained. “In the end, we expect three to four per cent growth rates for the North American PET market in the long term.”
The North American market for polyvinyl chloride (PVC) is facing several challenges, according to Kevin Allen, associate editor at Houston-based Platts.
First, he said, pressure is coming from record high raw materials. NYMEXAugust crude futures passed US$147.00 per lb. in early July, while ethane began climbing in early June and reached record highs at US$1.54 per gallon shortly after. Ethylene prices followed and in early July spot touched US$0.70 per lb., Allen said.
Looking ahead, the biggest issue to affect PVC demand and pricing will be weak domestic demand, largely caused by the decline in residential and commercial construction.
Additionally, Allen continued, feedstock costs are volatile and have recently approached record highs. Spot ethylene numbers were as low as US$0.46 per lb. in February of 2008 and shot up to as high US$0.70 per lb. in the first few days of July, he said. The price then fell as low as US$0.44 per lb. following Hurricanes Gustav and Ike, before climbing to roughly US$0.60 per lb. “Given the range between February and July, PVC producers were looking at roughly a US$0.10 per lb. increase in ethylene costs alone over the course of six months,” he said. “During that same period, ethane costs jumped from as low as US$0.89 per lb. in February to as high as US$1.54 per lb. in July.”
Unfortunately, he noted, there are no visible signs of near term improvement. “Bank of America forecasts that PVC prices and margins will continue to weaken well into 2009,” he cautioned.
Also, capacity expansion is expected to continue and is estimated to reach 19 billion lbs. by 2011.Netcapacity expansion in North America is to be roughly 3.6 per cent in 2009. “In the end, PVC will remain competitive in 2009,” he concluded.
The precursors to nylon include crude oil, natural gas, benzene, cyclohexane and PP. The price of benzene, in particular, has always been a determining factor in the price of nylon. The June 2008 benzene contract price settled at US$4.31 per gallon, while the July 2008 contract price came down to a two-tiered settlement of US$4.16 to US$4.18 per gallon, but rebounded to a record high in August at US$4.45 per gallon.
According to Mark Wasilenski, of BASF Corporation in Wyandotte, Mich., increased feedstock and additive costs will put pressure on nylon margins and pricing in the short term. In the medium term, he continued, projected lower feedstock energy costs will allow nylon pricing to stabilize, but not back to historic levels. Finally, in the long term, nylon will align with feedstock and energy costs as global supply and demand remains in balance.
“Currently, the market trends driving nylon use include demand for lighter parts for fuel efficiency in the automotive market,” Wasilenski said. “Nylon also offers greater design freedom, and allows for injection molded parts rather than metal stamping.”
“After years of premium performing and high-priced success, the bloom is slightly off the PC rose,” said Paul Blanchard, senior consultant with CMAI. “Under certain conditions, the situation may arise where PC slides into a commodity status.”
The optical media market, including CD and DVD cases, is currently the largest category of PC use, Blanchard said, but is under increasing pressure as a result of the growing number of people downloading music rather than purchasing CDs.
The future of the PC industry lies in growth, Blanchard continued, and in keeping resources focused on developing new applications. “The PC industry needs another monumental application to drive future growth,” he said. “Automotive glazing might perhaps fill this void.”
Blanchard also predicted a glut of PC on the global market beginning in 2010, as a number of planned PC plants come onstream — including an enormous Saudi-Cayenne project in Saudi Arabia. “North America is a net exporter of PC, and this new capacity will hurt PC exports, and leave PC producers supplying only the demand in North America,” he said. “We foresee the PC market undergoing cost erosion, and this will affect price in a situation where there is too much supply.”
According to Blanchard, the price for general purpose PC should remain at approximately US$1.60 to US$1.80 through 2009. “Suppliers should keep in mind, however, that this price does not include sales and marketing costs, and that growing demand for PC is a marketing-intensive exercise,” he cautioned.
THE EXPERTS PREDICT
Domestic polyolefin demand will decline between one to five per cent through 2009. North American polyolefin exports are expected to decline by 10 to 20 per cent by end of 2009. Polyolefin prices should decline through 2009, but it’s difficult to quantify the amount. Shannon Schneider, Nexant ChemSystems
Hurricanes have kept polystryene price high, but prices will drop throughout 2009. Demand for polystyrene will continue to slow, while the Middle East will begin exporting large amounts of styrene, dropping operating rates in North America. Peter Feng, Chemical Marketing Associates Inc.
Prices in North America will drop due to an influx of Asian-made PET. Three to four per cent growth rates for North American PET market are expected in the long term. Landon Feller, ICIS
Weak domestic demand, due to decline in construction markets, will cause PVC prices and margins to weaken into 2009. Also, net capacity expansion of 3.6 per cent is expected in North America in the next year. Kevin Allen, Platts
Increased feedstock and additive costs will pressure nylon margins and pricing in the short term. In the longer term, nylon will align with feedstock and energy costs. Mark Wasilenski, BASF
The polycarbonate market is under pressure as CD market contracts. There will be a glut of PC on the global market beginning in 2010, as Middle East manufacturing plants come on-line. Paul Blanchard, Chemical Marketing Associates Inc.
GROWING THE BIOPLASTICS MARKET
Bioplastics are hot, and a wide range of major petrochemical producers is at work on biopolymer developments. A sampling of such projects, by company, includes:
• The Dow Chemical Company: involved in a joint venture project in Brazil using ethanol to make ethylene for LLDPE.
• DSM Resins: earmarked US$300 million for alternative sustainable chemistry. The company is also currently working on low-temperature catalysts to polymerize carbon monoxide and CO2.
• Meridian:openingaUS$30millionlb. polyhydroxyalkanoate (PHA) plant in 2009.
t: developing its Sorona polypropylene terephtalate (PPT) technology, and is also involved in a joint venture project with Plantic in Australia for cornstarch technology to make cosmetic and food packaging.
• Purac: developing lactic acid technology for improved polylactic acid (PLA).
• Total Petrochemicals: involved in a lactic acid joint venture project with Galactic to improve PLA.
• Novamont: developing its Mater-Bi Starch resins, as well as its Origo-Bi clear biodegradable polyester.
• Musashino Chemical: involved in a joint venture with Tejin Chemical to develop heat resistant stereo components involving complex PLA.
Source: John Moisson, Jamplast Inc.
2008 CONFERENCE PROCEEDINGS FOR SALE
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Sessions covered supply, demand and pricing forecasts for polyethylene, polypropylene, PVC, styrenics, PET, bioplastics, and the major engineering resins.
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