PE, PP and PVC resin markets to remain volatile
By Jerry Powell, Resource Recycling
A number of industry experts suggest that resin markets will continue to see wide swings in pricing as we head toward 2014.
Michael Greenberg of the Plastics Exchange told attendees of the Canadian Plastics Magazine Resin Outlook Conference this week that North American polyethylene operating rates remain high (above 90 percent) and inventories "are comfortable" but have been slowly building since 2009. Due to the very low cost of natural gas in North America (70 percent of North American PE is made from natural gas), PE producers in the region are very competitive worldwide and exports are the reason the resin market is tight. About one-fifth of North American PE output is exported. Future supply-and-demand changes will keep the market volatile, says Greenberg . He notes that while PE’s average price over the past five years was 69 cents per pound, the high and low marks during that period were 39 cents and 88 cents, respectively.
One element helping to generate a tight PE market will be continued North American demand growth, according to Paul Blanchard of IHS. He sees global demand rising by 4.8 percent per year to 2018. Blanchard says this will push exports from North America upward to about 25 percent of output. The rise in resin demand will lead to more than a dozen new PE production plants coming on line in the next five years. Chris Gick of NOVA Chemicals estimates this will boost annual capacity by 16 billion pounds per year by the end of the decade. The market will remain very attractive to integrated producers (those running crackers to make ethylene from which to make their own PE). Blanchard predicted that these market conditions will result in PE prices moving upward.
"We do not expect anyone to be dropping their prices," Blanchard said. Gick pointed out that low feedstock costs and strong global demand are the reasons additional capacity is coming on line. But higher North American polypropylene consumption, plus rising exports, will produce very high operating rates and, as a result, higher prices.
Greenberg and Blanchard painted a different picture for PP. Greenberg pointed out that the cost of North American PP is too high to attract offshore interest (only 3 percent is exported), although it is also a volatile market, with polymer-grade propylene (PGP) prices ranging from 40 cents to 90 cents per pound over the past half-decade. This extreme price volatility has led to broad swings in the amounts of PP held in inventory by plastic converters. In addition, many PP buyers have tried to take the price risk out of the market by contractually linking the PP price to PGP pricing, although Greenberg says market pressure is being exerted to delink PP to PGP.
One reason for high PP prices is that cracker operators are making more money selling other derivatives, said Blanchard.
"It’s been difficult to find PP lately," he said. "It’s a tight, high-priced market." But just as with PE, new PP production capacity is coming on line. This will not result in price weakening in the near term, he concluded. "Prices will remain high in 2014."
The continuing increase in gas from fracking wells will eventually reduce propylene production costs and, thus, will lead to an increase in PP exports.
Phillip Karig of Mathelin Bay laid out for the attendees the many unique aspects of the North American PVC market. For one, PVC manufacture is more integrated than for other resins, with many producers being integrated downstream. PVC marketing is also somewhat unique because of the high seasonality of demand, with sales rising into the summer and declining in the winter due to PVC's reliance on construction markets for sales. Thus, many plastics converters try to pre-buy resin in the winter, when the resin’s value is lower.
Because PVC is made from ethylene (and salt), it too is affected by the glut of cheap gas in North America and the new onslaught of frack-gas volumes. "Fracking is a revolution" in PVC production, he notes. However, he told the audience to "not expect any shale gas dividend." As with PP, cheaper PVC will generate higher exports and, as a result, "the PVC market will be tight," said Karig. PVC capacity utilization will rise above 90 percent in the coming years, and this will keep resin prices above historic averages.