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United States Petrochemicals Report Q1 2011
Business Monitor International, Dec 2010, Pages: 87
Business Monitor International's United States Oil and Gas Report provides industry professionals and strategists, corporate analysts, oil and gas associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on United States's oil and gas industry.
Rationalisation has eroded the US’s lead in commodity chemicals in the face of massive Chinese and Middle Eastern capacity growth, but the petrochemicals industry is witnessing growth in research and development (R&D) that should sustain its competitive edge in high performance and differentiated products, according to BMI’s latest US Petrochemicals Report. US production of major plastic resins totalled 56.9bn lbs in the first nine months of 2010, a 4.5% y-o-y increase. Sales and captive use of major plastic resins totalled 56.4bn lbs, a 3.8% increase, resulting in a net surplus of 500mn lbs. There were significant variations between polymer segments, although across the market US producers saw their share of sales increase. Even in segments where sales declined, the weakness of the US dollar prompted an increase in production. The most dynamic segment was PVC, with sales growing by 8.6% to 10.48mn lbs, leading to 9.4% growth in output to 10.50mn lbs. This was partly due to the stimulus package that BMI estimates generated 1.6% growth in construction in 2010, as well as a rise in PVC cargoes to Europe. However, this will not be enough to offset the massive decline in PVC sales experienced in 2009 when the construction sector slumped by 9.6%, leading to a 1.3% decline in PVC output. In addition, the housing market is close to a bottom, but shows very few signs of a sustainable recovery, so there is a distinct possibility of PVC sales and production falling again. LLDPE and LDPE saw divergent trends in sales, with growth of 6.2% and 1.7% y-o-y to 10.16bn lbs and 5.13bn lbs respectively, leading to output growth of 5.1% and 2.8% y-o-y to 10.31bn lbs and 5.07bn lbs. LLDPE benefitted from the competitiveness of US PE output in Asian markets. LLDPE output has been highly robust and resilient to the recession due to its increased use in a broader range of packaging applications, largely at the expense of LDPE. In 2009, LLDPE output grew by 4.2% and LDPE output decreased by 5.7%.
Sales performance was disappointing in the HDPE, PP and PS segments, with growth of 0.1%, 2.9% and 2.0% respectively to 12.69bn, 13.00bn and 3.81bn lbs, reflecting the lacklustre performance of industries utilising these productions, notably consumer durables and the automotives industry, which continue to suffer from the effects of unemployment and low levels of household consumption growth. The PS segment is also suffering from a decline in popularity in the packaging sector, with sales falling by 7.3% in 2009. Despite the challenging market for these segments, HDPE output grew 1.1% to 12.82bn lbs, PP grew by 3.2% to 13.03bn lbs and PS grew by 4.0% to 3.86bn lbs. As such, US petrochemicals production growth was broad-based and resistant to the slow and uneven recovery.
BMI forecasts that between 2009 and 2015, capacities will fall by 1.9mn tpa of ethylene, 265,000tpa of PP, 1.7mn tpa of PVC and 1.1mntpa of PE, with plants with capacities under 200,000tpa the most likely to close due to their lack of competitiveness on the global market. Between 2009 and 2015, 7% of ethylene, 7% of PE, 3% of PP and 24% of PVC capacities will have closed permanently. PP will fare better due to a transfer in demand away from LDPE, a product that is likely to weigh down the PE segment and negatively affecting the fortunes of Westlake and LyondellBasell, the US’s largest LDPE producers. PVC and PS will see the most rapid shrinkage in capacities. PVC operations run by Oxychem, Formosa Chemicals and Dow Chemical are particularly under threat, while all producers in the PS segment are likely to suffer the twin effects of falling demand and the phasing out of PS in packaging over environmental concerns.
The segment that is likely to come under the most pressure is PET. The completion of a 432,000tpa PET plant by Indorama at Decatur, Alabama in September 2010 has heightened concerns of over-capacity in the segment. Producers fear it could negatively impact PET profitability in the Americas with PET market conditions becoming more challenging as supply additions have exceeded demand growth in recent years.
Invista and Eastman Chemical are both considering divesting their PET operations due to lack of profitability. The long-term scenario could improve if
PET is used as an alternative to aluminium or HDPE in packaging. However, efforts towards ‘light-weighting’ PET bottles, which reduced the amount of PET used and therefore limit PET demand growth, have largely achieved as much as possible and bottles are now as light as they can get, so the market is unlikely to decline dramatically over the medium term.
The US scores 86.4 points in Petrochemical Business Environment Ratings, down 3.1 points since the previous quarter due to projected declines in petrochemicals capacity and lower country risk scores. It still retains its indomitable lead in BMI’s Americas Regional Petrochemicals rankings, 9.6 points ahead of Canada. However, the score is under pressure as major firms close capacity in response to the slump in demand, plunging product prices and increased competition with large, new complexes in Asia and the Middle East.'
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