New Industry Outlooks for Polyethylene and Polypropylene
The global polyolefin industry is about to enter one of it’s more challenging and dynamic periods. While industry supply demand balances allowed producers to pass through unprecedented levels of feedstock prices in 2007, demand in the United States and Western Europe face increased uncertainty with concerns over economic recession being discussed daily in the media. The near term, therefore, has significant downside potential on the demand side just as a wave of capacity is about to be unleashed in the Middle East and Asia. Producers can however take some comfort from continued robust growth in China, India and elsewhere in Asia.
There are many themes that spring out of Nexant’s latest study on global polyethylene and polypropylene. The first relates to the near term, with demand growth for polyolefins in 2008 expected to match that seen in 2007 largely driven by consumption growth in Asia. This demand growth is set to be matched by new capacity additions and, consequently, global operating rates are expected to be maintained in 2008 to average well into the 90 percent range. There are both upside and downside potential to this projection, with upside from delays in capacity additions and downside from any slow down in demand.
The second theme is the outlook beyond 2008. ChemSystems forecasts provide a long term industry outlook 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 (2010-2012) could be very severe if all of the plants are actually commissioned, albeit perhaps on a delayed schedule. Based on a continuation of the investment cycle, operating rates are however, forecast to rise again in 2013 reaching a new peak in 2015-2016.
A third theme relates to the changing pattern of global polyolefin trade flows. The location of capacity development has shifted, and as a result, global trade patterns will move 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 115 million tons in 2007, a growth of 5.3 percent over 2006. This is forecast to rise to just less than 250 million tons by 2025.
Figure 1 Global Polyolefin Consumption 2007
The demand growth for LDPE continues to be very low due to competition from LLDPE. The degree of penetration of LLDPE into the combined LLDPE/LDPE market has continued to climb every year and in 2006 reached 50 percent. This showed further progress in 2007 with, for the first time, global 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.
LLDPE maintained its position as the fastest growing polyolefin, with consumption growing at an estimated 6.6 percent in 2007. The longer term outlook is for an annual global growth rate of over five percent over the period 2007 to 2025. Single site/metallocene LLDPE continues to grow at high rates (an estimated 13 percent globally in 2007). These resins now account for nearly 12 percent of global LLDPE demand, with the United States still the largest market.
Figure 2 Global Combined LLDPE and LDPE Consumption Growth (2007-2025)
Global HDPE demand grew by 6.0 percent in 2007 compared to 2006. HDPE growth is forecast at an annual average global growth rate of 5.5 percent over the period 2007-2015. Around half of this growth, in volume terms, will be in Asia. Bimodal HDPE continues to be a focus for global growth based upon an expanding product performance envelope.
Polypropylene demand growth is estimated in 2007 to have been 5.2 percent, a slight improvement over the level of growth witnessed in 2006. Growth rates in the emerging economies in Asia, Central and Eastern Europe, Middle East, and Africa have been significantly ahead of those seen in the more mature markets in North America, Western Europe and Japan. The relatively high growth rate for polypropylene reflects its continued 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 certain HDPE applications, particularly when prices are low. The longer term outlook is for growth of 5.5 percent per annum over the period 2007 to 2015, 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 polyethylene consumption growth for Asia (excluding Japan) is forecast at 7.1 percent per annum over the period 2007 to 2015 while a figure of 7.0 percent is forecast for polypropylene. These figures are to be contrasted with the growth rates seen in the more mature economies of the United States and Western Europe where growth rates of two to three percent are more common. Other regions of above average growth include India, Latin America and Central and Eastern Europe.
Supply
Total polyolefins capacity grew by nearly 45 million tons from 1997 to 2007, as summarized in Figure 3. The industry has followed a clear investment cycle over the last ten years with a peak in polyolefin capacity additions in 2000. Since then, capacity growth from 2002 to 2005 has fallen to lower levels and only picked up again in 2006. Consequently, supply 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 has been a key driver behind the improved profitability seen by the industry as a whole.
Figure 3 Polyolefins Capacity Growth (1995-2025)
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 and 2007 have shown reasonable capacity growth. This however is just the start of a strong wave of LDPE capacity additions over the period 2008 to 2012. Although there is still some uncertainty around the start up dates, much of this capacity is already under construction.
In contrast to the very modest growth in LDPE capacity, combined LLDPE and HDPE capacity has been growing at an average of over two million tons per year over the period 1995 to 2007. After a strong period of capacity growth in 1999 to 2001, there has been moderate capacity additions over the period 2003-2007. As for LDPE, there will be a wave of LLDPE and HDPE capacity additions over the period 2008 to 2012.
Polypropylene sees a similar picture to that described for LLDPE and HDPE. Over the period 1995 to 2007, 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 seeing a prolonged period of below average capacity growth. This has subsequently helped maintain the global polypropylene operating rate at high levels. 2007 sees the highest net capacity addition globally for the last seven years, with new capacity additions 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. The more mature industries in Western Europe and North America will make only limited capacity additions. Demand growth is projected to be heavily focussed in China, with Western Europe and North America seeing a growth in demand which, although low in terms of growth rate, will not be inconsequential in terms of absolute demand increment. These regions will therefore become more dependent on imports over the 2007 to 2025 period. This is illustrated below for the United States which, with the exception of LDPE, will see an increasing dependency on imported resin.
Figure 4 United Sates Polyolefin Net Trade (2007-2025; -ve value reflects net imports)
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.
For further details please contact David Alston at +44 207 950 1544 or at dalston@nexant.com.
©2008 Nexant, Inc.
