US ethylene boom is a dangerous game

Consumer demand

SHARE THIS STORY

US C2 Mar14The blog continues to lose sleep at night worrying about the likely impact of the planned 10MT expansions of US ethylene and derivative capacity.  And it seems it is not the only one.  Since it first raised the alarm last August, it has talked to a number of senior industry executives and investors who also cannot see the logic for the new capacity.

The reason for the mounting concern is captured in the above two charts from the blog’s new analysis of the subject in ICIS Chemical Business this week:

  • US production of ethylene and all its main derivatives has not yet exceeded the peak levels seen before the financial crisis began in 2008
  • The top chart shows that net exports for the main derivative, polyethylene, have fallen 37% since 2009 according to data from Global Trade Information Services

Of course, the US has an advantage in energy costs today due to shale gas.  But historical evidence suggests it is most unlikely this will continue, as there is no fundamental reason why oil prices should remain at today’s uncompetitive level.  But let us leave this evidence aside and accept that the advantage will continue.

The key question is then highlighted on the exam paper, namely where will all this new production be sold?

The problem lies in the fact that cheap supply is no longer the key to commercial success.  It was critical in the BabyBoomer-led boom, when the global population trebled between 1950 and today.  Of course, there could never be enough supply to meet all this demand.

But today, fertility rates have halved around the world since 1950, whilst life expectancy has increased by 50% to average 70 years.  Between a third and a half of adult populations in most countries are now in the New Old 55+ generation.  Their numbers have quadrupled to 1.2bn since 1950, and will increase a further 50% to 1.8bn by 2030.

Common sense, as well as official data, tells us that the New Old already own most of what they need, whilst their incomes reduce as they enter retirement.  So they simply cannot maintain the demand levels seen when they were younger.  (More detail is in the blog’s earlier series on the world’s Top 6 economies: US, China, Japan, Germany, France, UK, which combined, are more than half of the global economy).

The blog hopes that Boards will listen to the evidence on this crucial demographic issue before making final decisions on all this new capacity.  Please click here to download a copy.

Otherwise it fears their successors will be the ones losing sleep, as they find it impossible to sell all the new capacity that has been built.

PREVIOUS POST

Demographics drive demand and fertility rates have fallen

25/03/2014

A major debate is underway in Eurozone financial markets about the imminent appr...

Learn more
NEXT POST

China’s struggle for a new economy

27/03/2014

“To most outsiders the language of official declarations is mind-numbing. ...

Learn more
More posts
Smartphone market decline begins to impact global stock markets
19/05/2019

The bad news continues for the world’s smartphone manufacturers and their suppliers.  And Pre...

Read
There’s a great future for the European plastics industry in recycled plastic
05/05/2019

Europe’s plastics industry is under major threat from the growing legislative and consumer bac...

Read
$60bn opportunity opens up for plastics industry as need to eliminate single-use packaging grows
17/03/2019

150 businesses representing over 20% of the global plastic packaging market have now agreed to start...

Read
IKEA heads into the circular world with furniture subscription trial
10/02/2019

“Once upon a time, Granny and Grandad used to go to a large shop on the motorway to buy their ...

Read
Fed’s magic money tree hopes to overcome smartphone sales downturn and global recession risk
03/02/2019

Last November, I wrote one of my “most-read posts”, titled Global smartphone recession ...

Read
Global smartphone recession confirms consumer downturn
11/11/2018

Q3 smartphone sales data show the global market in recession, as Strategy Analytics confirmed: “Th...

Read
Trump’s auto trade war adds to US demographic and debt headwinds
06/08/2018

President Trump’s auto trade tariffs are bad news for the US and global auto industry, as the ...

Read
Plastics recycling paradigm shift will create Winners and Losers
17/06/2018

My new analysis for iCIS Chemical Business highlights the paradigm shift now underway in the plasti...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more