Commodity resin outlook 2007

High prices on most major commodity resins will continue through 2007, triggered mainly by demand from China and rising costs of crude oil and natural gas. The other factors influencing high resin prices in 2007 will be volatile energy prices, mergers and acquisitions of chemical companies, the rising Canadian dollar, and overseas pressures. Based on discussions at the Canadian Plastics ' Resin Outlook Conference the following trends can be forecast for commodity resins Polyethylene With Asia expected to be the region of highest demand growth uptil 2015, the potential for a high demand for polyethylene (PE) in 2007 seems to be very strong on a global basis. Actual U.S. and Canadian domestic PE demand seems poised to continue to grow throughout 2007. PE supply that had been limited in North America in H2-2005 by hurricanes Katrina and Rita, are now on track as PE resin imports into North America have returned to a level close to the historical long-term average. North American operating rates are estimated to remain above 90%, and the market will remain balanced and tight through 2007. Ethylene prices are estimated to increase through 2007 due to an increase in the average costs of ethylene feedstock ethane and naphtha in the last twelve months by 150% and 240% respectively when compared to 1990 prices. Though demand for ethylene is predicted to grow marginally in 2007, it will not exceed supply, except in the case of a significant recession that could change this supply and demand forecast. Polypropylene Operating rates for olefins and polyolefins (PO) are currently high, with low inventories in most countries. A "fly up", projected to begin by the end of 2006 and peak in 2007, will result in high prices, operating rates and margins. Lack of new capacity in 2007 and 2008, caused by expected construction delays in the Middle East and China, will keep operating rates and material prices high. A downturn is projected to begin in 2009, triggered by an influx of material when the new capacities start up. More profit will be taken in from olefins than from polyolefins from Q4-2006 through to 2008. The global demand for polypropylene (PP) reached an estimated 65 million tons in 2005, and is forecast not to dwindle in 2006 and 2007, with operating rates projected to be at 90%. The global demand for PP will grow by about 6% in the next year, and China will continue as the largest importer. China's projected demand for PP will grow to reach 50% of all Asian demand by 2010. On the supply side, the Middle East is projected to become the major supplier of PP in the next few years as no new PP plants are currently under construction or even announced in the United States, due to high feedstock costs. This will transform North America into a net importer between 2006 and 2010. Poly Vinyl Chloride High prices of PVC can be attributed to escalating energy costs. In 2007, energy costs are expected to rise, hence cost of PVC is projected to increase to about US$0.60 per pound. Margins for PVC should remain higher in the downturn, 2008 and 2009. But demand for PVC in North America is expected to decrease, due to overseas pressures such as the importing of finished consumer goods, THUS reducing focus on export markets for PVC resins. A boom in the construction market will set PVC demand in North America. In 1980, Asia accounted for 21% of the total global capacity of 36 million metric tons for PVC; and by 2005, Asia accounted for up to 49%, a trend expected to hold until at least 2010. Styrenics Prices for polystyrene (PS) are predicted to remain high and volatile throughout 2007. The markets for PS are growing slowly in North America and Western Europe, but rapidly in China. However, some PS applications become obsolete, and with technology changes in major application areas, have affected demand. Also, a lot of the new technical equipment is small, and uses less PS. The cost of PS, however, is influenced by the monomers used to produce it, hence price of styrene should fluctuate with that of raw materials. Styrene prices, due largely to benzene, ethylene, crude oil and natural gas, are pushing derivative prices. Currently, there is an overcapacity of styrene, and demand is slow, but the price of benzene reached a record high of US$4 per gallon in October 2006, and at present, benzene supply is limited in North America, but imports are likely to increase, easing price pressures in Q4-2006.