New Middle Eastern Capacity Will Transform Market

Despite expectations of high demand for polyethylene packaging in developing regions such as Eastern Europe (Dec 02 MP, 60; MPI, 69) and Asia-Pacific, the world’s most-used polymer will probably register an annual growth rate of 4.9%.

Horst Maack of analyst Maack Business Services, Au, Switzerland, says global polyethylene capacity last year (68.15 million tonnes) far outstripped demand (54.97 million tonnes), keeping resin prices below suppliers’ expectations.

Future pricing may be advantageous for processors. Significant PE capacity is scheduled to come onto the market from suppliers in low-cost-feedstock areas in the Middle East. Saudi Arabia, Qatar, Kuwait, and Abu Dhabi all have capacity projects or expansions underway. Lou Compton, marketing manager of PE producer QChem, Doha, Qatar, says 6 million tonnes of high-density PE and linear low-density PE capacity will come onstream in the Middle East by 2005. NPC, Tehran, Iran, which now has a resin capacity of 380,000 tonnes/yr, is ramping up another 1.42 million tonnes/yr of output, and production of another 1.16 million tonnes/yr is in the planning stage.

“We’re not interested in disturbing the market…[I]t isn’t in our nor our competitors’ interests,” exclaims M.A. Zardbani, foreign commercial director of NPC’s marketing arm, Iran Petrochemical Commercial Co. But Hubert Puchner, CEO of Abu Dhabi-based competitor Borouge, which started up a 450,000-tonne/yr plant last year, says, “I have serious reservations [about] how these huge increases in capacity [from Iran] can be absorbed into the market without seriously affecting the stability that is now needed.” Zardbani believes that because NPC’s capacity won’t come onstream all at once, the market will have time to adjust.

In North America, 2002 volumes and prices were better than expected, says Bob Beil, commercial vp. for polyolefins for Dow in Houston, TX. LDPE is growing at less than 2%/yr in the U.S., while HDPE is at 5.5%/yr, and LLDPE more than 8%. “Prices still are nowhere near reinvestment-recovery levels,” Beil notes, however.

Market analyst Jonathan Duff, of Klein Europe, in Brussels, expects demand for LLDPE stretchwrap to skyrocket in Eastern Europe. That may be one reason behind Basell’s formation of a polyolefins joint venture with resin maker PKN Orlen, Plock, Poland, last year.

While higher demand for LLDPE and HDPE in China and various other parts of Asia-Pacific is expected in the next five years, many observers feel that technical developments have likely come to a close. “We pretty much have seen the extent of property improvements in PE,” says Sirinder Bahl, analyst at Phillip Townsend Associates, in Houston. “Polymer makers are going to be investing in R&D for applications development, [asking], ‘What other uses are there for existing PE materials.’”

Because polypropylene shortages and more competitive PE pricing are expected, Bahl says some processors may switch from PP to HDPE for injection as well as blow molded household goods, tubs, and containers — if the resin can be processed without tooling changes. He also believes that as resin makers focus on world-scale trains that produce standard grades, the range of polymers may be smaller in the future. Dow’s Beil, for instance, admits that the company has eliminated about 15% of its PE products (Jun 02 MP, 28; MPI, 30). Last December, he said Dow started a second phase of rationalization to weed out less-profitable grades.

“Europe and Asia-Pacific will increasingly be served from the Middle East for volume grades…Specialties will still largely come from plants closer to the end-user,” predicts Volker Trautz, president of Basell Polyolefins.