Polyolefin oversupply issues prevented in 2009, second wave in 2010 may hit harder

Producer discipline, delays in Middle Eastern start-ups and voracious Chinese demand prevented a tsunami of polyolefins in 2009, but the second spate of capacity additions in 2010 could hit the markets harder. This was the conclusion drawn by a number of presenters at CMAI’s World Petrochemical Conference, as reported in Plasticstoday. In previous WPCs, analysts and market participants assessed a doubling of olefin capacity in the Middle East, with additional production built in China, and forecast a global market flooded with polyethylene (PE), polypropylene (PP) and their feedstocks. But the new capacities in the Middle East and China had little impact in 2009. Howeevr, this is expected to change. Historically around 12-15% of the industry's capacity is underutilized, but that figure could reach 26-27% this year. Paul Pang, CMAI's managing director for China, said China's 2008 stimulus, officially pegged at US$600 bln (equal to 20% of its GDP), fed plastics and chemicals growth through infrastructure- and consumer-driven demand. On the consumer side, domestic retail demand accounted for 46% of the country's GDP in 2009, up from 30% in 2005. That awakening of China's consumer class helped the country consume more chemicals in 2009 than the U.S. and Western Europe combined. Mark Eramo, executive VP market advisory services at CMAI, said that in addition to Chinese consumption carrying the global market, capacity closures helped synch production with demand. Going forward, there will be 32 mln tpa of ethylene capacity rationalization globally, with 23 mln tons of those shut downs in the U.S., Canada, France, and Italy. Even with that effort, however, ethylene overcapacity will reach a projected 20 mln tons, equal to 18% of global capacity. The full impact of the previously announced ethylene additions will be felt in 2010, as 12 mln tpa of new capacity comes online, mostly in Northeast and Southeast Asia. The effect on the market will be utilization rates pushed down into the 80% range, with levels not reaching 90% again until 2014. Steve Zinger, CMAI's managing director for Asia, pointed out that start-up delays in the Middle East provided some respite, with the market receiving about 8 mln tpa of new capacity in 2008 and 2009, instead of the announced 10 mln tpa. PE exports that were expected to double in that same time frame, actually stayed about the same. On top of those factors, China stimulus proved quite stimulating. China's growth was not tied to exports of finished goods, but driven by local demand. Its PE imports came in about 1.5 mln tpa higher than expected. CMAI forecasts that Middle East ethylene production will rise from 15 mln tpa in 2007 to more than 30 mln tpa in 2014. Much, but not all of that capacity will be absorbed by Asia. In 2009, China led the way, according to Howard Rappaport, CMAI global business director plastics, particularly in the case of PE. "[China] was pulling in any excess capacity from around the globe. Of its imports, 50% came from Asia, 24% from the Middle East, and 9% came from U.S., which actually saw its PE exports to China briefly eclipse shipments to Mexico. Export opportunities to China are expected to continue for the next few years before falling off, especially as 15 mln tpa of new PE capacity comes online over the next three years. The realignment of resin production and converting continues apace, with 2009 likely to be viewed in retrospect as only a sizable speed bump.