25 October 2013 10:00 [Source: ICB]
Old assumptions no longer hold, thanks to shifting US feedstock position and China macroeconomics
Just a few years ago, the US polymers industry seemed to be dead on its feet. Consolidation was the order of the day rather than expansion.
And at that time, there was no clear space between the US and Europe in terms of feedstock position. Both were highly uncompetitive versus raw material-advantaged regions such as the Middle East.
In the case of China, also, the outlook was very different in 2007, the year before the Beijing Olympics. China was a booming market, and was the automatic “go to” choice for most Western wholesalers and retailers of finished goods because of its ample labour supply and therefore low labour costs.
The following five to six years have seen wrenching change in the global polymers industry, largely because all of the above assumptions have been turned on their heads.
An important new study – the ICIS Consulting World Plastics Report 2013 – analyses what the next five years and beyond are likely to mean for the global polymers business. It takes a close look at how the three megatrends we have highlighted above will evolve – along with many other important shifts in the global polymers industry. The study takes 2012 as reference year, and covers nine major thermoplastics – low-density polyethylene (LDPE), linear low-density PE (LLDPE), high density PE (HDPE), polypropylene (PP), polyvinyl chloride (PVC), polystyrene (PS), expandable PS (EPS) acrylonitrile butadiene styrene (ABS) and styrene acrylonitrile (SAN).
The survey shows that in 2005-2012, the global polymer industry grew by 37m tonnes to 194m tonnes, corresponding to an average annual consumption growth of around 3%. This is not a bad performance when considering the 2008-2009 difficulties.
The market perspectives look better in the future. Global consumption should grow by 4.4%/year during 2012-2017, adding a further 47m tonnes of polymers demand by 2017. Demand will continue to perform unevenly, with Asia leading the growth.
THE IMPACT OF US SHALE
Only a few years ago, North America was expected to become a net importer of ethylene-based polymers. Now the feedstock cost advantage can support polymer investments that are export-oriented.
The impact of this is already being felt before the new US plants come on stream. New polymers capacity in Latin America is likely to be reconsidered.
ICIS sees a risk that the start-up of too many plants in North America will result in overcapacity by around 2017-2018, if all projects are completed as planned.
But the study believes that capacity increases in fact will probably be more staggered. Oversupply will be avoided because of the difficulty in actually obtaining construction permits.
As for Europe, the ICIS consulting view is the region cannot compete because of petrochemicals feedstock and energy costs. Plus, the European industry is getting older. Thus, aged/smaller plants will be closed down, not only because of their higher unit costs, but also because of expensive maintenance.
Some important end-uses for polymers in Europe, such as packaging, are increasingly being fed by imports, not only of polymers but also of processed materials, such as film. These imports can be slowed down by stringent EU product requirements (quality, characteristics), but certainly not stopped.
Demand growth in parts of eastern Europe is potentially high because of lower per-capita consumption and good economic growth prospects. This might lead to more imports.
CHINA OUTLOOK DRASTICALLY DIFFERENT
The World Plastics Report’s outlook for China takes into account a very different country from 2007. Demand recorded annual average growth rates far below GDP in 2012, says the study. But growth rates are expected to gradually return to close to the increase in overall GDP, but this is likely to only happen in the long term.
Structural policy changes are dominating the short-term outlook. These include the need to halt speculation in some areas of the economy – for example, the construction sector.
But government support for consumption in rural areas still represents the potential for a great deal more demand growth in polymers.
A negative for growth is the big dependence of the plastics industry in China on exports to the West and the doubts over sustainable economic recoveries in North America and Europe.
For the rest of Asia, the World Plastics Report concludes:
■ A distinction has to be made between countries like Thailand and Malaysia, and developing and densely populated countries like India, Indonesia, Vietnam and the Philippines, where per capita consumption of polymers is very low and far below the world average.
■ Thailand and Malaysia have their own petrochemical industries with plants built to also serve export markets. Both countries are noticeable exporters of polymers to their neighbouring countries and to China.
■ Growth potential remains good throughout southeast Asia. But while some countries are likely to see polymers demand growth well in excess of GDP, Thailand and Malaysia will probably see growth more in line with GDP.
■ South Asia’s imports are set to grow with demand growth higher than supply additions.
As for polymer supply growth, the ICIS study concludes that an additional 43m tonnes/year of new capacities in the nine major thermoplastics will come on stream in 2012-2017. Polyolefins will account for 73% of this total.
Northeast Asia, mostly China, will account for the biggest percentage of the capacity additions at 44%. It will be followed by the Middle East at 18.5% and Asia-Pacific at 17.5%.
Only two regions will record a trade surplus in 2017 – the Middle East at 20m tonnes and North America at 5.6m tonnes. All other regions are predicted to show trade deficits. Northeast Asia is expected to record a negative balance of 6.7m tonnes and Europe 5.5m tonnes.
THE WORLD PLASTICS ANNUAL STUDY
The World Plastics Annual Study offers a complete review of the world commodity thermoplastics industry, with historical data from as far back as 2000 and forecasts for up to 2025.
The report delivers 750 pages of trusted data and analysis that will help you explore future global supply and demand trends, and improve your planning and research capabilities. Find out more at www.icis.com/chemicals/channel-info-about/world-plastics-study
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