Recovery of the US petrochemicals market began in H2-09 led by linear low-density polyethylene (LLDPE) and high-density polyethylene (HDPE), but in the long-term the market will be determined by the performance of key petrochemicals consuming industries such as car production and construction which have witnessed significant set-backs due to the recession, according to Business Monitor International’s Report.
In Q3-09, US olefins production increased by about 3% quarter-on-quarter (q-o-q), according to the latest production statistics from the National Petrochemical Refiners Association (NPRA). Ethylene production rose 2.3% to 13.0 bln lbs, while propylene grew 5.7% to 7.8 bln lbs and butadiene increased 1.1% to 772 mln lbs. On a year-on-year (y-o-y) basis, ethylene production grew 12% and propylene was up 2.2%, but butadiene dropped 7.6%. BMI forecasts an 8% rise in olefins output in 2010, with cracker operating rates set to grow from around 80-85% in H209 to around 90%.
In January-November 2009, plastic resins output dropped 0.6% y-o-y to 65.41 bln lbs, according to figures from the American Chemistry Council (ACC). Sales and captive use of major plastic resins totalled 66.5 bln lbs, down 2.8% y-o-y. Performance varied from segment-to-segment with LLDPE posting 6.5% growth in output, while HDPE grew 0.9%. This reflected shifts within the PE industry, with low-density polyethylene (LDPE) in gradual decline as its popularity declines, falling 8.3% y-o-y in the period and offsetting a large part of the gains made by LLDPE and HDPE. There is 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.
In terms of sales and captive use, total PE was up 0.2% with LDPE down 7.0%, LLDPE up 3.7% and HDPE up 0.6%. Polystyrene (PS) is also witnessing a long-term downturn as its use declines. In January- November 2009, its output declined 8.2% and sales fell 9.4%. Polyvinyl chloride (PVC) output and sales in the period were also down 2.7% and 3.9% respectively, due in large part to the collapse of the real estate sector. Towards the end of the year, PVC production and sales rose sharply in line with the recovery from Q4-08 lows; in November, PVC sales were up by over a third compared with the previous November, while output was up nearly a quarter. In the polypropylene (PP) sector, output and sales fell 0.6% and 1.5% respectively, affected in part by the sharp slowdown in the automotive sector. Again, PP posted strong growth in H2-09 that offset a large part of the losses sustained in H1-09, assisted by a revival in car production. The demand for cheaper, more versatile and lower gauge PP products coming onto the market should define the segment's performance over the medium term.
The automotive and construction sectors will continue to influence the prospects of the US petrochemicals industry. In 2010 we anticipate that growth will return to the US construction industry. Beyond 2010, growth will grow will peak, reaching between 7.9 and 8.6% between 2011 and 2013, providing growth to the petrochemicals market, particularly PVC. In the automotive industry, production in the US has been declining for several years. Our forecast for the next five years envisages further declines in output for 2009 and 2010. While car sales could have a detrimental effect, the increasing use of engineering plastics as a light-weight substitute for metals in automotive components in the drive towards greater fuel efficiency could assist the petrochemicals sector, particularly PP. A significant feature of 2010 will be the reorganisation of LyondellBasell, which has been undergoing reorganisation under Chapter 11 proceedings in New York since early 2009. In December 2009, LyondellBasell said the majority of its creditors agreed to support the company's reorganisation plan, which will involve raising US$2.8 bln through the purchase of equity upon emerging from Chapter 11. LyondellBasell is the target of a take over bid by India's Reliance Industries (RIL), which in January 2010 was offering US$13.5 bln, upped from an earlier US$12 bln, for the US chemicals group, a move that would transform RIL from being an exclusively Indian operation into a global company with US$80 bln in sales. Reports in early 2010 suggested that the Indian company wants a minority stake but 'super-voting rights' that would give it control of LyondellBasell. However, LyondellBasell's reorganisation plan values the group at US$14.5 bln, so Reliance has a lot of negotiating to do to convince management and creditors that it has the capability to raise the finance and rescue LyondellBasell from bankruptcy. The US scores 89.5 points, giving it an indomitable lead in our Americas Regional Petrochemicals Rankings, 12.7 points ahead of Canada and 25.3 points ahead of Brazil. However, the score is under pressure as majors idle and 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.