Outlook '06: Contrasting times for Asian plastics

05 January 2006 05:32  [Source: ICIS news]

By Carol Zu and Clive Ong

Sunset/empicsSINGAPORE (ICIS news)--A year of contrasting fortunes is in store for the Asian plastics industry, with the polyethylene (PE) and polypropylene (PP) market expected to continue its bull run while the polystyrene (PS) market looks set for consolidation at a time of uncertainty.

China, with its economy continuing to register high growth rates and its factories churning out much of the end-products that use plastics, will be the player that determines the industry’s fortunes, according to most sources.

In the first 11 months of 2005, Chinese PE imports grew 10.2% over the corresponding period of 2004. PP imports increased 4.2% and acrylonitrile butadiene styrene (ABS) imports were up 0.6%. On the other hand, PS imports fell 8.6% to 1.16m tonne. These trends are likely to continue in 2006, according to traders, producers and buyers.

Demand for PE and PP will outpace supply, with a Middle-Eastern producer saying the new Chinese capacities will not be sufficient to cover demand.

“Supply will remain tight until 2008, as there will be limited olefin and polyolefin expansions till then,” an official from a producer in South Korea told ICIS news.

The major start-up in China in 2006 is CNOOC & Shell Petrochemical Co’s (CSPC) complex at Daya Bay, Huizhou, Guangdong Province in the first quarter. It will bring on stream 450,000 tonne/year of PE capacity and 240,000 tonne/year of PP. Jilin Petrochemicals’ 300,000 tonne/year high-density PE (hdPE) line at Jilin, Jilin Province, will also be commissioned this year.

In Iran, Arya Sasol’s 300,000 tonne/year low-density PE (ldPE) facility is due on stream in August and a 300,000 tonne/year medium-density PE /hdPE swing unit in September. India’s Reliance Industries should commission a 280,000 tonne/year PP line at Jamnagar in the first quarter, bringing its total PP capacity to 1m tonne/year.

“Chinese PE demand should increase by 14-15% in 2006, higher than the economic growth projection of 8.5-9%,” said an official from a Chinese producer. This is higher than the growth in imports, while domestic output will be only marginally better with a 16.5% increase to 4.81m tonne.

“The regional supply shortfall is more obvious for PP. Domestic output accounted for 60% of the total demand at 5.63m tonne in 2005,” he added. A consultant in China said that PP demand grew by 13% to 8.5m tonne in 2005, and should reach 14m tonne/year in 2010 – meaning the shortfall is likely to continue.

However, there are some concerns for the PE and PP markets.

“Besides the high energy costs, which has begun to bite into capacity expansion, there are increasing concerns over antidumping investigations on Asian plastic products by the US, Canada and Europe. This could hurt the export of plastic bags from Malaysia, Thailand and China in 2006,” said an official from a Middle Eastern producer.

That is nothing compared to the problems faced by the PS industry. There are no known PS capacities coming on stream in 2006 and Shanghai Secco Petrochemical Co’s (Secco) 300,000 tonne/year PS unit, which started operations in mid-2005, is operating only around 60-70% of capacity due to low demand.

Demand has been especially weak for general-purpose PS (GPPS), with the price premium for high-impact PS (HIPS) over GPPS widening to $40-50/tonne in 2005 from the usual $30/tonne.

Declining demand for GPPS comes as traditional markets like cassette tapes and video cassette recorders are replaced by compact discs (CD), digital video discs (DVD) and mini discs (MD). Applications like CD or DVD casings are also being replaced by PP.

The market for toys, generally the bell weather for GPPS, has also been decreasing.

“Retailers demand higher requirements to meet changing tastes. Toys exported to the US and Europe are becoming more sophisticated, needing parts that use rubber, soft plastics and even wood or metal,” said a trader. “Such cosmetic requirements cannot be met by using GPPS.”

With little alternative uses for GPPS, suppliers anticipate a further decline in demand. Already, PS producers like Idemitsu Malaysia have allocated over 80% of their capacity to HIPS and Totalfina’s plant in Singapore is producing only HIPS.

But HIPS is not off the hook either. Cathode ray televisions sets that used HIPS are being replaced by plasma and liquid crystal display (LCD) TVs, which use other plastics like ABS or polycarbonate (PC). Personal radios are also being replaced by the modern MP3 players, which use PC or PC-ABS alloys rather than HIPS.

There is some hope in the copying industry, though. Sale of printers, which are usually made from HIPS, should improve in 2006 in line with the bullish information technology (IT) and semiconductor industries. Gaming consoles like Xbox 360, Playstation 3 and Game Cube could also boost demand, though one PS supplier said that only Playstation 3 consoles would use HIPS.

In 2003, three Japanese producers – Asahi Kasei Chemicals, Mitsubishi Chemical and Idemitsu Petrochemical – consolidated their PS business in Japan into a single entity called PS Japan. What happened in Japan then could happen in other parts of Asia in 2006, with observers saying the downturn in the PS industry is showing no sign of abating.

By: Carol Zu
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