Another fall expected in European polymer demand

GDP for the EU27 is forecast to contract by 4% in 2009, and AMI sees no quick return to growth for polymer demand. European polymer demand could fall another 3-4% in 2009, resulting from the massive destocking that hit commodity and engineering plastics last year, according to AMI. Weak polymer production and demand was seen through H1-09 with little evidence of re-stocking through the supply chain. Some hints of recovery in markets mid-year, primarily driven by the packaging sector. But processors are still buying polymer strictly to order, rather than rebuilding stocks to former levels. In 2008, demand for thermoplastics in Europe fell by 8% compared with 2007, and such difficult market conditions have not been experienced in the plastics industry in Europe since the early 1980s. Many companies were ill-prepared for the precipitous slide in demand that occurred from August 2008 in the midst of economic uncertainty caused by the banking sector’s problems. In the last quarter demand declined on average by 20-25% for most resins. The destocking by converters in the fourth quarter affected all polymers, applications and markets, although to a greater or lesser extent. Some packaging, medical and hygiene markets held up better than others, but polymer demand in building, automotive or discretionary consumer products saw “unprecedented drops in demand”. PET demand declined by 3% last year, one of the smallest percentage declines among polymers, but still a setback for a material more used to growing at 6% per year. Polyolefin demand was down between 8% and 10% for 2008. As well as the problems in key construction and automotive markets, AMI noted volume demand was also impacted by trends in down gauging and re-engineering to strip out costs. The grimmest performance was in PVC where the market contracted by more than 11%. This followed two years of relatively strong growth for this material with the market reaching a new peak of 6.4 mln tons in 2007. AMI estimates the market for general purpose, high impact polystyrene was also down sharply by 9% following a better than expected performance for 2007. Even engineering resins, which AMI said had been enjoying growth rates at twice the rate of commodity polymers in the five year period to 2007, experienced a 7% drop in demand in 2008. Weakness in engineering polymers demand is expected to continue through 2009 because of their greater dependence on manufacturing trends in automotive production and electrical goods. The severest demand falls in 2008 were in Western Europe, particularly in the UK and Spain which both saw double-digit percentage drops in polymer demand caused by the collapse of property markets and subsequent consumer demand weakness, said AMI. In contrast, German demand was least affected by the downturn due to exposure to markets in eastern Europe and lower levels of consumer debt in the domestic economy. AMI said the slowdown in Central and Eastern Europe hit converter buying much later in the year, but demand was very weak in these countries during the first quarter of 2009.