Buyer's market PREVAILS
By Cheryl C Lewis -- Purchasing, 8/13/1998 2:00:00 AM
The outlook just keeps getting better and better for domestic buyers of polyethylene resins. During the second half of 1997, rising capacity levels and falling raw-material costs began to free up availability and put downward pressure on polyethylene (PE) prices. These conditions were expected to keep PE tags soft this year.
As 1998 began, the downturn in the Asian market, which has weakened demand for petrochemicals and resins in that region, has put more downward pressure on PE tags. And it appears that this problem isn't going to disappear soon. In fact, some analysts predict PE prices will remain soft through the next three years because of the weak Asian markets coupled with growing capacity and falling raw-material costs.
Market softness will span the gamut, from petrochemicals such as ethylene to derivatives, including polyethylene. "The whole petrochemical industry is in the weak part of its cycle, and the crisis in Asia has made the situation worse," says Fred Peterson, president of Probe Economics, Millwood, N.Y. As a result, Peterson forecasts petrochemical and polymer prices to be soft for several years.
According to Probe's "most likely" forecast, U.S. Gulf Coast ethylene prices will fall from an average of 19(cent)/lb this year to 14.3(cent)/lb in 2001. High-density polyethylene (hdpe) tags will slip from 36.3(cent)/lb in 1998 to 29.4(cent)/lb in 2001, while linear low-density polyethylene (lldpe) will drop from 33.3(cent)/lb to 24(cent)/lb.
Prices sink
Domestic ethylene tags peaked in the second and third quarters of 1997 at an average of 26(cent)/lb, according to Purchasing's monthly transaction price survey. After that, slowing demand and increasing capacity began to put downward pressure on prices. Ethylene prices were down to an average of 19(cent)/lb in June, and buyers forecast prices will decline another 2(cent)/lb by year's end.
That's despite an attempt to raise prices at the start of the third quarter. In early July, Equistar Chemicals announced a 5(cent)/lb price increase on, ldpe, lldpe, and PE resins for rotational molding applications effective August 1.
The fall off in ethylene tags immediately affected PE tags. Spot prices for blow-molding-grade hdpe averaged 47(cent)/lb through the fourth quarter of 1997. After that, prices dropped rapidly, falling to an average of 34(cent)/lb in June. Buyers predict hdpe tags will slip another 2(cent)/lb to an average of 32(cent)/lb in the fourth quarter.
Domestic hdpe contracts also quickly reacted to the downturn in raw-material costs. U.S. bulk contracts averaged 44(cent)/lb in the third quarter of 1997, then dropped to 41(cent)/lb in the fourth quarter. These prices continued to fall throughout 1998, dropping to 36(cent)/lb in June. Buyers expect contracts will drop to an average of 33(cent)/lb in the fourth quarter.
Film-liner-grade low-density polyethylene (ldpe) prices on the spot market peaked at an average of 45(cent)/lb in the third quarter of 1997. Since then, these prices have dropped an average of 1(cent)-2(cent)/lb each quarter. In June, spot prices for ldpe averaged 41(cent)/lb, and buyers forecast prices will slip another 3(cent)/lb through the fourth quarter.
ldpe contracts topped off at 48(cent)/lb in the second quarter of 1997, then dropped to an average of 47(cent)/lb for the rest of the year. In the first half of 1998, film-liner ldpe contracts averaged 45(cent)/lb but dipped to 44(cent)/lb in June. These tags are forecast to drop to an average of 40(cent)/lb in the fourth quarter.
Spot tags for general-purpose-grade lldpe reached a high of 42(cent)/lb in the second quarter of 1997. After that, prices began to decline, falling 1(cent)-2(cent)/lb each quarter. In June, lldpe tags were down to 36(cent)/lb. Buyers look for these prices to decline another 3(cent)/lb to 33(cent)/lb by year's end.
U.S. bulk contracts for general-purpose-grade lldpe slipped from a high of 47(cent)/lb in the second quarter of last year to 41(cent)/lb in the third quarter. Since then, prices have recovered, climbing to an average of 46(cent)/lb in the second quarter, but buyers expect contracts to fall to an average of 44(cent)/lb in the fourth quarter.
Capacity surges
There are sixteen producers of polyethylene in the U.S. That's down from 18 in 1997. Last year, Lyondell Petrochemical Co. and Millennium Chemicals formed the joint venture Equistar Chemicals. This year, Occidental Chemical added its ethylene business to the joint venture. As a result of these business combinations, Equistar Chemicals is now the largest producer of ethylene and polyethylene resins in North America.
This joint venture continues a trend toward consolidation and joint ventures in the polyolefins market. These producers are gaining some pricing power, but in the long run buyers will benefit through cost-cutting measures.
Domestic PE capacity is growing. U.S. capacity is at 11.2 billion lb/yr for hdpe, 8.1 billion lb/yr for ldpe, and 9.7 billion lb/yr for lldpe. Some of the lldpe capacity includes 'swing' capacity from plants that can produce hdpe or lldpe.
A number of PE producers have been increasing capacity. In 1997, Maoming Petrochemical started up a high-pressure tubular ldpe plant in Maoming, China. Capacity at the facility is 100,000 tonnes/yr. In April, Eastman Chemical Co. brought on an additional 80 million lb/yr of lldpe and extra ldpe capacity, boosting total capacity to 430 million lb/yr.
Later this year, Dow Chemical will add a 550 million lb/yr solution train at its Fort Saskatchwan, Alberta, production site. The company is also building a 500 million lb/yr PE facility in Thailand as part of a 50:50 joint venture with Siam Cement.
Equistar Chemicals is debottlenecking its Victoria, Texas, hdpe facility, adding 125 million lb of capacity in 1998. The company is also expanding its Matagorda, Texas, hdpe facility by 480 million lb/yr. The project is scheduled for start-up in the third quarter of 1999.
This year, Nova expanded capacity for ldpe by 40 million lb/yr at its Sarnia, Ontario, plant. The company is also constructing a 770 million lb/yr multiple reactor solution process plant at Joffre, Alberta, which will produce Advanced Sclair PE products.
Phillips Petroleum plans to build a petrochemical complex in Alberta, Canada. The project, which could begin operation as soon as 2003, would produce 1.2 billion lb/yr of ethylene and 1.1 billion lb/yr of PE.
Some leadtimes dip
Leadtimes for hdpe continue to shrink, according to Purchasing's monthly leadtime survey. Blow-molding-grade hdpe leadtimes have declined from an average of 12.6 days in June 1996 to 9.3 days in June 1997. This year, leadtimes in June averaged 8.3 days.
Meanwhile, delivery times for ldpe and lldpe are stretching out compared to last year but are comparable to 1996 leadtimes. In June 1996, ldpe leadtimes averaged 13.0. This figure dropped to 9.6 days in 1997 but has popped back up to 13.5 days in 1998. lldpe leadtimes are following the same trend.
Demand is strong
Currently, worldwide PE demand is strong with the exception of the Asian Pacific region. Through May, demand is up 4%-5%, compared to 1997 due to stable North American economies, according to Len Azzaro, commercial director of polyethylenes in North America for Dow Chemical.
In 1997, growth in consumption of PE waned, averaging only 2%-3%. That was down from 8%-9% growth in demand that occurred in 1996. In 1996, the market was recovering from a soft year in 1995. Demand and exports were high as users replenished inventories.
Most polyethylene demand will remain linked to three types of products: film, blow-molded bottles, and injection-molded containers, according to The Freedonia Group, a market research firm in Cleveland, Ohio.
Demand for hdpe will continue to grow at an average of 2%/yr. This low growth rate is the result of mature markets and competition from other resins.
ldpe demand will continue to slowly decline as it loses marketshare to lldpe and hdpe because of better performance characteristics and lower production costs. Meanwhile, demand for lldpe is strong, growing 8%-9%/yr. The largest application for this PE resin is plastic film.
New products
Advances in catalysts and technology are quickly changing the PE market. As producers search for a competitive advantage, there has been a large number of technology improvements and new products being introduced.
Among them, Eastman Chemical Co. recently introduced its Tenite Hifor Clear polymer for the film packaging market. This new product is a high-performance lldpe product that provides better clarity and strength than ldpe. The Tenite Hifor Clear product complements the company's Tenite Hifor polymers line. Last year, Eastman launched its extra low-density Mxsten polymers. These lldpe resins are for use in producing films with high dart impact and tear strength.
Dow Chemical offers its Elite enhanced polyethylene resins, which are produced using the company's Insite technology. Applications include blown film, cast stretch films, and high-performance film applications. Better processability and improved performance are some of the benefits of using Elite resins.
In the fourth quarter, Nova will begin making commercial quantities of Enhanced Sclair PE polymers. These products exhibit metallocene-like properties.
Major U.S. polyethylene producers and capacities
(1998, million lb/yr)
Producer HDPE LDPE LLDPE
Chevron Chemical 1,130 920 250
Dow Chemical 600 1,100 1,420
DuPont -- 755 --
Eastman Chemical -- 660 3501
Equistar Chemicals 3,300 1,700 1,100
Exxon Chemical 265 700 9601
Fina 365 -- --
Formosa Plastics -- -- 530
Himont -- -- 440
Mobil Chemical 375 500 860
Paxton Polymer 1,200 -- --
Phillips Petroleum 2,200 -- --
Rexene -- 405 --
Solvay Polymers 1,725 -- --
Union Carbide -- 500 3,1001
Westlake -- 850 --
Totals 11,160 8,090 9,745
1Capacity is for swing plants that produce LLDPE or HDPE.SOURCE: PURCHASING
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