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2008 was a difficult year for global polyethylene and polypropylene markets |
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2008 was a challenging and dynamic period - a year in which the industry saw unprecedented volatility. H1-08 saw prices rising to record highs as industry supply-demand balances enabled producers to pass through extraordinary feedstock prices. In contrast, H2-08 witnessed an unprecedented demand crash as a result of problems in credit markets and its effects on economic activity. The decline in demand was exacerbated by falling feedstock prices, with crude prices dropping 70% from July 2008 values by the end of the year. With declining polymer prices, purchasers withdrew from the market and inventories along the value chain reduced significantly. The degree of inventory contraction is reflected in the fact that the fall in demand was far beyond that anticipated from the economic downturn, with the 2008 consumption estimated to have shrunk by 1.6% compared to an estimated 3% growth in global economic output, as per a report by Chem Systems.
Chem Systems anticipates operating rates will fall considerably in 2009 as compared to 2008. Demand is expected to improve slightly over 2008 figures, but is not expected to return to 2007 levels in mature economies. This small increase in demand will be dwarfed by new capacity additions coming on stream in the Middle East and Asia. The period after 2009 to 2012 is expected to be one of marked producer weakness, as a consequence of weak demand growth, the poor economic environment and these very large capacity additions. It is very likely that the industry will be forced to consolidate production to sustain economic operation during this period. Global trade patterns are also expected to shift due to these changes in the market. Over the next few years, global trade patterns will evolve noticeably as the United States and Western Europe become major net importers of LLDPE, HDPE and polypropylene, with the Middle East takes its position as supplier to the world.
Global polyolefins demand is estimated at 113 mln tons in 2008, a decline of 1.6% as compared to 2007.
| GLOBAL POLYOLEFIN CONSUMPTION IN 2008 |
| |
KT |
(%) |
| LDPE |
18 |
16 |
| LLDPE |
19 |
17 |
| HDPE |
31 |
27 |
| PE |
|
|
| PP |
45 |
40 |
| TOTAL |
113 |
100 |
The demand growth for LDPE continues to be impacted by competition from LLDPE. The degree of penetration of LLDPE into the combined LLDPE/LDPE market has continued to climb every year, reaching over 51% in 2008. Demand for LDPE is projected to remain flat due to this continued pressure from competitively priced conventional and second generation LLDPE. The consumption of LLDPE fell an estimated 1.2% in 2008, after growing 5.6% in 2007. In spite of this, LLDPE is still the polyolefin with the brightest demand outlook, and is projected to grow at almost 6% pa for the next 7 years. It is notable that single site/metallocene LLDPE was one area that did continue to grow in 2008, albeit at low rates.
Global HDPE demand shrank by 2.1% in 2008 compared to 2007. HDPE will recover growth in the next few years as the industry restocks the inventory chain and as the economic outlook improves. Approximately half of this projected growth in demand will be in Asia. Bimodal HDPE continues to be a focus for much of this growth based on an expanding product performance envelope. The supply side will also be boosted by the potential for single gas phase reactor production, giving a lower capital and production cost.
After a 6% growth in 2007, polypropylene global demand is estimated to have declined by almost 1% in 2008 due to the economic climate and significant de-stocking of the value chain. North America and Western Europe were particularly affected, while the Asian market, a strong performer in the recent years, saw minimal growth. The outlook has a relatively high growth rate, which can be attributed to the penetration into end-use applications served by traditional materials, and also with polypropylene benefiting from inter-polymer competition with polystyrene, ABS and HDPE.
Total polyolefins capacity increased by 51 million tons from 1998 to 2008. 2008 however has been a relatively quiet year in terms of capacity additions as skills shortages delayed the startup of a number of units.
In 2008, LDPE net additions were relatively low. This was largely due to the delay in new units coming on stream. However, a strong wave of capacity additions is expected within the period 2009-2012. Most of these capacities are under construction, but there are still some uncertainties around start-up dates. In contrast to the relatively modest growth in LDPE capacity, combined LLDPE and HDPE capacity has been growing at an average of over 2 million tpa. 2008 has been a year of limited HD/LL capacity addition, this however will soon change as the industry sees the start of a wave of LLDPE and HDPE capacity additions over the period 2009 to 2012. Polypropylene will also see unprecedented new capacity of over 5 mln tpa come on stream during 2009-2011.
As this substantial capacity is scheduled to start-up during a time of weak demand, immense industry pressures due to falling operating rates are expected to lead to closures of older and less competitive assets in the more mature markets of Western Europe, North America and Japan. The near term investment wave is focused in regions with advantaged feedstock such as the Middle East, or regions of high market growth such as Asia. Looking further ahead, a period of low investment is expected for all polyolefins during 2014 and 2015, followed by a new wave of capacity additions in the second half of the decade.
ChemSystems� new outlook has significant consequences for global polyolefins trade. With respect to capacity, the medium and longer term perspective is one of capacity additions occurring largely in Asia (excluding Japan) and the Middle East. Mature markets such as Western Europe and North America will experience limited capacity additions, and even closures of less competitive units. While demand is expected to be heavily focused in China, Western Europe and North America will also see a growth, which although low in terms of growth rate, will not be inconsequential in terms of absolute demand increment. These regions are therefore expected to become far more dependent on imports over the coming decade.
United States Polyolefin Net Trade (2008-2015; negative value reflects net imports)
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