New Industry Outlooks for Polyethylene and Polypropylene
Summary
Three major themes spring out of this latest study on the world of polyethylene and polypropylene. The first relates to the relatively short term and the timing of industry cycle and downturn in industry profitability. Demand growth for 2007 is expected to continue strongly as a result of a positive outlook for the global economy. This demand growth is forecast to outpace new capacity additions and, consequently, global operating rates in 2007 are projected to average well into the 90 percent range. Comparable values are foreseen for 2008 except for a modest decline in LDPE and polypropylene operating rates. As such, the polyolefins industry is forecast to continue in a period of relatively good financial performance that could last towards the end of 2008.
The second noticeable feature of the report is the outlook beyond 2008. The report covers industry analyses out to 2020 and highlights that the current period of strong market performance should be taken in the context of the next downturn. Based on the large number of capacity expansions announced in China and the Middle East, the next downturn (2009-2011) could be very severe based on the fact that all of these plants will be built, albeit perhaps on a slightly delayed schedule.
The third key feature of the report is to stress the changing pattern of global polyolefin trade flows. As a consequence of the location of new capacity, global trade patterns will change dramatically as the United States and Western Europe become large net importers of LLDPE, HDPE and polypropylene by the end of the decade, with the Middle East becoming the supplier to the world.
Demand
Global polyolefins demand exceeded 111 million tons in 2006, a growth of 4.5 percent compared to 2005. The change in global polyolefins demand is shown in Figure 1 and is forecast to rise to 200 million tons by 2020. The most notable element is the declining influence of LDPE.
Figure 1 Global Polyolefin Consumption
The demand growth for LDPE continues to be very low due to competition from LLDPE. LDPE growth was 2.7 percent in 2006, giving a combined LDPE/LLDPE growth of 4.8 percent. In 2004 the degree of penetration of LLDPE into the combined LLDPE/LDPE market was 48 percent. This increased slightly to 49.1 percent in 2005 and for 2006 reached 50.1 percent. This represents a turning point with, for the first time, demand for LLDPE exceeding that for LDPE The demand for LDPE is projected to be relatively flat as a result of pressure from competitively priced conventional and second generation LLDPE but over the next two years LDPE will have stronger positive growth. The longer term outlook is for growth of two percent per annum over the period 2005 to 2020. LLDPE maintained its position as the fastest growing polyolefin, with consumption growing at an estimated 6.9 percent in 2006. The longer term outlook is for a 5.5 percent annual global growth rate over the period 2005 to 2020. Single site/metallocene LLDPE continues to grow at high rates (an estimated 15 percent globally in 2005). These resins now account for 12 percent of global LLDPE demand, with the United States still the largest market. Global HDPE demand growth increased 5.1 percent in 2006 compared to 2005. HDPE growth during the next few years is projected to be higher due to the reverse substitution for polypropylene in the injection molding sector. Bimodal HDPE continues to be a focus for much of this growth based upon an expanding product performance envelope and the potential for single gas phase reactor production which would have a lower capital and production cost. The longer term outlook is for growth of 4.6 percent per annum over the period 2005 to 2020. Polypropylene demand growth increased in 2006 to 3.9 percent from 3.2 percent in 2005. While this represents an improvement it is still lower than the period 2000 to 2004 when the annual growth rate averaged about 6 percent. The higher growth rate was the result of polypropylene’s penetration into applications served by traditional materials, including metals, wood, and ceramics, and also some growth at the expense of other polymers. Polypropylene is generally the beneficiary of inter-polymer competition with polystyrene, ABS and HDPE in a number of areas, particularly when prices are low. The longer term outlook is for growth of 4.5 percent per annum over the period 2005 to 2020, a comparable growth rate to HDPE.
On a region by region basis, Asia, and in particular China, shows a consistent pattern of positive growth for polyethylene and polypropylene. Total polyolefins consumption growth is forecast at 6.3 percent per annum over the period 2005 to 2020. This is to be contrasted with the growth rates seen in the more mature economies of USA and Western Europe where growth rates are 3.0 percent and 2.4 percent per annum, respectively. Other regions of above average growth include India, Latin America and Eastern Europe.
Supply
Total polyolefins capacity grew by nearly 41 million tons from 1998 to 2006, as summarized in Figure 2. The industry has followed a clear investment cycle of the last ten years with a peak in polyolefin capacity addition in 2000. Since then, capacity growth from 2002 to 2005 has fallen to lower levels and only picked up again in 2006. Consequently, supply has failed to keep pace with demand growth, resulting in increased operating rates. This is one of the key prerequisites for an improvement in polyolefin business performance, and is one of the key drivers of improved profitability for the industry as a whole.
Figure 2 Polyolefins Capacity Growth
(1998-2020)
Over the period 1991 to 2005, LDPE capacity additions achieved a highest level of approximately 400 thousand tons per year. In some years, including 2003 and 2004, net capacity addition was effectively zero. In this context, 2006 represented the highest capacity LDPE addition made for at last 15 years. This however is just the start of a wave of LDPE capacity additions over the period 2007 to 2010. Capacity addition of LLDPE and HDPE is considered together in this overview owing to the capability of swing units to produce both polymer types. In contrast to the relatively modest growth in LDPE capacity, combined LLDPE and HDPE capacity has been growing at an average of over 2 million tons per year over the period 1991 to 2006. After a strong period of capacity growth in 1999 to 2001, there was limited capacity addition in 2003 to 2004. Since then capacity addition has increased and 2006 capacity growth was the strongest in the last four years. As was witnessed for LDPE, this is just the start of a wave of LLDPE and HDPE capacity additions over the period 2007 to 2010. Indeed 2009 and 2010 are scheduled to represent unprecedented levels of new LLDPE and HDPE capacity. Thereafter, the assumption made behind this report is that the investment cycle will then continue with further strong capacity additions towards the end of the next decade.
Polypropylene demonstrates a similar picture as described for LLDPE and HDPE. Over the period 1991 to 2006, polypropylene capacity was added at an average of around 1.9 million tons per year. Analysis of capacity additions shows that polypropylene has followed a very clear investment cycle with the period 2002-2005 representing a prolonged period of below average capacity growth. This has kept the global polypropylene operating rate at a high level for a few years now. The investment cycle though is returning and a strong period of new capacity additions has commenced reaching a peak in 2009 and 2010. Thereafter, the capacity additions are expected to fall off prior to resuming a further wave of investment towards the second half of the next decade.
Impact on Global Polyolefin Trade
The outlook presented in this report has significant consequences for global polyolefins trade. With respect to capacity, the medium and longer term perspective is one of capacity additions occurring largely in China and the Middle East. In contrast, the more mature industries in Western Europe and North America will make more limited capacity additions. On the other hand, demand is expected to grow heavily in China. Western Europe and North America will also see a growth in demand which will be low in terms of growth rate but not inconsequential in terms of absolute demand increment. These regions will therefore become more dependent on imports over the 2007 to 2020 period. This is demonstrated for North America, below, which, with the exception of LDPE, demonstrates and quantifies the increasing dependency on imported resin.
Figure 3 North American Polyolefin Net Trade
(2006-2020: -ve value reflects net imports)
Market Dynamics Forecasting Methodology
ChemSystems Simulator is used by Nexant to develop its commodity petrochemical market dynamics and profitability forecasts. It is also used by Nexant’s clients to develop their own private forecasts under license from Nexant. Please contact Nexant if you would like to evaluate the use of the ChemSystems Simulator for your organisation.
The report “PolyOlefin Planning Service: Executive Report, Global Commercial Analysis” is published by Nexant as part of its ChemSystems POPS program. Subscriptions or single copies of the report are available from www.chemsystems.com. For further details please contact David Alston at +44 207 950 1544 or at dalston@nexant.com.
©2007 Nexant, Inc.
