OUTLOOK ’10: N American polyolefins margins to narrow

28 December 2009 21:30  [Source: ICIS news]

Polyolefins margins to narrowHOUSTON (ICIS news)--US polyethylene (PE) and polypropylene (PP) producers expect slimmer margins in 2010 as the economy recovers gradually and new capacity in Asia displaces US exports in global markets.

“I don’t see domestic demand coming back,” said a PE market participant, who predicted US producers would need to continue exporting large volumes to stay balanced.

An often-repeated fact about the US PE industry in 2009 was that domestic demand only filled 70-80% of available capacity, with producers needing exports to provide the remaining demand.

Traders and producers said the US could continue exporting 700m-800m lb of PE next year, even with new plants starting up in places like the Middle East and China.

Abundant supplies of natural gas from new shale extraction technologies were expected to keep US natural gas prices low, which would in turn maintain ethylene production costs at a competitive level.

Producers acknowledge that export dynamics were an important part of their ability to push through price increases and build margins during 2009.

The continuation of those exports in 2010 will be an important barometer of the industry’s health, as domestic PE sales volumes in 2010 are not expected to vary from 2009 by more than 1-2 percentage points, a producer said.

In the PP market, producers and customers were victims of tight monomer supplies and volatile feedstock prices, and a similar scenario was expected to unfold in 2010.

Ethylene cracker operators would continue to prefer ethane feedstock going into the first quarter, so refineries would have to supply more of the PP industry’s propylene.

However, a busy first-quarter refinery turnaround schedule would likely keep propylene supplies tight and PP prices high, a trader said.

“There will be a tendency for margins to be squeezed a little more than under normal conditions,” a PP producer said. Because the export market will be difficult, North American producers will be forced to operate at low rates, the source said.

High resin prices also do not bode well for PP converters, who will enter the new year with low inventories.

“We need to see lower prices for rigid plastic packaging in 2010 to boost the business,” a source at a major packaging producer said.

US PP producers include Sunoco, LyondellBasell, ExxonMobil, INEOS, Total, Formosa, Phillips Sumika, Pinnacle Polymers, ConocoPhillips, Flint Hills Resources and Dow Chemical.

Major US PE producers include Dow Chemical, ExxonMobil, Formosa, INEOS, Total, Chevron Phillips Chemical, Westlake and LyondellBasell.

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By: David Barry
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