The New “China Price” Threatens Metallocene LLDPE

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By John Richardson

THE great advantage of moving up the value chain to  metallocene-grade linear low-density polyethylene (mLLDPE) in Asia is that every time converters upgrade their equipment, they tend to switch to machinery that can process the resin.

“In Europe and the US, the problem is that far more converters have already invested in machinery that can run mLLDPE and so the market, in this respect, is pretty much mature,” said an industry source.

You are also seeing other types of growth, which is again pretty much tapped-out in the West, such as:

  • The “environmental plus” of needing less mLLDPE resin than conventional butene-grade LLDPE to produce the same volume of films.
  • MllDPE has better puncture resistance, tear resistance and stretch properties than conventional linear low.
  • This higher-value polymer is replacing cardboard and expandable polystyrene (EPS) in some wrapping applications. For instance, collation-shrink film, made from mLLDPE, is  increasingly being used to wrap refrigerators, TVS etc. which means you need less cardboard and EPS. This is both a cost saving and another environmental plus because less plastic is needed and weight is reduced.

So much for the public and investor-relations spin that you can easily get from any mLLDPE producer and via a quick internet search. What about the challenges?

Firstly, a lot of companies have recently invested in mLLDPE capacity in Asia, most notably ExxonMobil Chemicals, which brought on-stream its new plant in Singapore last year. It has a nameplate capacity of 1m tonnes/year.

SK Global Chemical is running trial production at its 230,000 tonne/year metallocene linear low density polyethylene (MLLDPE)/polyolefin elastomer (POE) swing plant in Ulsan, South Korea, according to this 31 May ICIS news story.

SABIC and SK have signed a $595m joint venture agreement, which includes the new plant at Ulsan. The two companies, which also plan to venture into polyolefin plastomers production, are  looking at constructing a new facility in Saudi Arabia.

And then there is PTT Global Chemical. The Thai producer is scheduled to convert a 400,000 tonnes/year butene-grade LLDPE plant to metallocene in 2017.

Will the market be big enough to easily absorb of all of this new capacity?

“Metallocene films only account for around 20% of the Asian market and so this is going to be a challenge,” our industry source added.

“The more people that move into any particular product the more the danger that it becomes commoditised. In the US, the market is pretty much entirely metallocene and so customers have come to expect metallocene-standard resins for butene-grade margins.”

And here is another concern: We think that what might well be driving increased interest in metallocene production in Asia is that the commodities end of the business in China is offering less potential for growth. This is down to China’s economic reforms that are focused on the quality rather than the quantity of growth.

Here is another thing: Don’t imagine for one second that China won’t make a big move into metallocene-grade production as it  attempts to move up the manufacturing value chain.

This will increase the danger of commoditisation, especially given that China might use government subsidies, in one form or another, to support production.

China has to move up the manufacturing value chain in order to escape the middle-income trap and so strong government support for many types of higher-value manufacturing seems inevitable.

Will overseas companies be able to match the new China price whilst also generating sufficient returns on their heavy investments in metallocene?

The story of the smartphone might well serve as sobering warning for the metallocene industry.

“It has taken the smartphone world completely by surprise: a ‘flagship killer’ packed with high-end specs, all for an asking price that dramatically undercuts the high-end Android competition,” says this 22 May article on the Australian news site, news.com.au.

“At $USD299, the OnePlus One smartphone costs less than half the price of Android handsets such as the Samsung Galaxy S5 ($929) and HTC One M8 ($899) — and from the processor to the display, it is a no compromise smartphone that blows the price-to-performance ratio wide open, in keeping with the company’s message of “the best and latest technology for everyone”.

“OnePlus is backed by the second-most profitable mobile phone company in China, Oppo Electronics, and headed by Oppo’s former vice president Pete Lau, who now has the global market it his sights as he gears up to ship the phone to consumers in over 18 countries next month.”

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