Global chemical, plastics glut to expand

The global plastics and petrochemical market will be forced on a diet in coming years, with every region, save the Middle East, likely to shed excess capacity weight. Gary Adams, president of Chemical Market Assoc. Inc. (CMAI; Houston, TX) reminded attendees at his company's Global Petrochemical Conference (March 25-26; Hilton Americas Hotel; Houston, TX) that CMAI had forecast a "supply-side down cycle at the end of 2008", but admitted it didn't anticipate the scale. Using its data and information from the American Chemistry Council (ACC; Arlington, VA), Adams concluded the sector "may well be the most over-supplied market that has emerged since the early '80s." Adams said surpluses could reach 14-16% of the total market, and that 25 million tonnes in the short term, and then another 50 million tonnes longer term, will need to be removed just to get back to 2006 supply balances, with surplus conditions likely to exist until 2012-2013.

In his global ethylene forecast, CMAI's Mark Eramo told attendees that the worst-case had become reality, with excess ethylene capacity hitting 18 million tonnes by the end of 2010, as 26.5 million tonnes of ethylene production will be added from 2007-2011.

On the basis of those figures, Eramo said capacity closures are likely in all major regions from 2009-2011, including likely cuts in Europe (2 million tonnes), Asia (3 million tonnes), and North America (4.2 million tonnes).

CMAI's Tony Potter said global incremental demand for ethylene normally grows around 4-4.5 million tonnes/yr, but last year it actually contracted 3.9 million tonnes. Potter, who tracks the Middle East for CMAI, told attendees the region took 20 years to build its first 15 million tonnes of ethylene capacity, but by 2013, it is expected to more than double capacity to 31 million tonnes. In spite of the economic meltdown, Potter said CMAI believes most of these additions will go forward. "Once steel goes into the ground, there may be delays, but the projects will go on," Potter said. These additions in cost-advantaged countries like Saudi Arabia, where ethane is priced at $0.75/million BTU, will further pressure higher-cost production sites.

Potter pointed out that there are 15 crackers in Europe alone that are under 400,000 tonnes/yr capacity, with any one being a potential target although politics will undoubtedly play a role in what's actually closed and when. "It's very expensive and very difficult to shut down any industrial facility in Europe," Potter said.

In his presentation on the global polyethylene (PE) market, Nick Vafiadis said most of the additions to PE capacity will come online this year and next, with the majority of those slated for Asia and Middle East. The pace of those additions has slowed but will go forward according to Vafiadis: "It's not going away, it's just being delayed."

As a result, Vafiadis and CMAI see record levels of excess PE capacity coming for 2011-2013, as operating rates fall to 70% globally. CMAI colleague Esteban Sagel forecast a similar scenario for polypropylene, saying that by 2011, there would be 17 million tonnes of excess capacity globally, roughly equivalent to 25% of total demand. "There really won't be any region of the world, with the exception of the Middle East, that will be immune from [rationalization]," Vafiadis said. "It has to happen."-[email protected]