The US petrochemicals industry will emerge from recession leaner than before following a string of plant closures, but further closures may be in the offing as producers struggle with competition from Asia and the Middle East. BMI's latest report argues that provided producers invest in technological improvements in processing, and the manufacture of high-end products with lower weights and increased durability and versatility, a reduction in capacity need not come at the expense of profitability or competitiveness. In the first three quarters of 2009, total resins sales were down 6.0% y-o-y to 53.29 bln lbs (24.17 mln tons). In the PE segment LDPE sales were down 10.5% y-o-y to 5.04bln lbs, LLDPE was down 2.2% to 9.55bln lbs and HDPE was down 4.4% to 12.68 bln lbs. The results demonstrate a shift in the market towards LLDPE on top of the effects of recession since it is becoming popular as a lower weight, better quality product than LDPE. The PP market, which was down 4.2% to 12.63 bln lbs, also demonstrated a better performance than the rest of the resins market. This reflected demand for cheaper, more versatile and lower gauge PP products coming onto the market as well as the stimulatory effects of car scrappage programs on automotive suppliers using PP components. The worst hit segment was PS, with sales down 13.0% y-o-y to 3.74 bln lbs, which is in part the result of falling use in packaging. The decline in construction activity impacted badly on PVC sales, which plummeted 8.8% to 9.65 bln lbs. The decline in the value of the US dollar cushioned the US producers from the full force of the domestic downturn, while supporting US exports. US resins output declined 3.3% y-o-y to 53.32 bln lbs (24.2mln tons) in the first three quarters of 2009, nearly half the rate of the decline in US resins sales. PE output fell 2.0% to 27.41 bln lbs. Bucking the trend, LLDPE posted a 3.6% y-o-y rise in sales to 9.81 bln lbs, although this was offset by a 12.7% decline in LDPE to 4.93 bln lbs and a 1.3% decline in HDPE to 12.67 bln lbs. PP output fell 2.0% to 12.6 bln lbs, while PS fell 9.8% to 3.7 bln lbs and PVC fell 6.3% to 9.6 bln lbs. The ACC projected petrochemical production to fall 8.1% in 2009 following a decline of 4.7% in 2008, but will return to growth of 1.6% in 2010 and 2.2% in 2011. BMI believes that the market losses seen in 2009 will be reversed in 2010 and 2011 as the economy begins its recovery, although performance will vary. In 2010, PE and PP will strengthen, but PVC will remain flat due to continued stagnation in construction and the phasing out of PS in the catering industry will limit scope for growth in styrenics. BMI forecasts that the North American thermoplastics compounds market will grow 17.6% y-o-y in 2009-14 to reach 48.5 mln tons. The resins market will grow 16.7% over the period to reach 31.8 mln tons by 2014, with the processor segment rising 18.0% to 10.7 mln tons. During this period, the nature of the US market will change as the emphasis shifts towards lower costs, lower weight and improved performance. In the face of massive new petrochemicals capacity in emerging markets, the US industry will need to leverage its technological advantages to produce value-added materials in order to compete. Consequently, plant closures need not signify the demise of the earning potential of US petrochemicals if they are accompanied by product improvements such as lightweighting downgauging and improved performance attributes. The problem of over-capacity will not be confined to ethylene. BMI estimates that global PE overcapacity is around 18% of world demand in 2009 and 15% in 2010, more than double the level of excess capacity seen in previous cyclical downturns in the petrochemical industry. This is includes the 9 mln tpa of capacity due to be taken out over the next five years to tackle the problems caused by surplus capacity. However, it is US producers in the PS and PVC segments that BMI believes will endure the lingering effects of the economic recession over the medium-term. BMI does not expect new housing starts to rebound strongly until 2012 and 2013, with only modest gains in 2010 and 2011. Consequently, the PVC market is set for continued weakness, with PVC plant operating rates are projected to increase from 75% in 2009 to 85% by 2013.