U.S. polyethylene prices will be high and tight, averaging over 60 cents per pound for the next 18 months, an industry consultant told last weeks meeting of the Petroleum Packaging Council. But the price for this key building block of lubricant containers is forecast to ease downward in 2007, dropping to 40 cents per pound by 2010.
Polyethylene is used to make a range of lubricant packages, including motor oil bottles, plastic pails and drums, and composite IBCs. While PE can be derived from crude oil or natural gas, 95 percent of PE is ethylene, Howard Rappaport, global practice leader for thermoplastics at Houston-based consultancy Chemical Market Associates, explained at PPCs fall meeting in Boston. And natural gas produces more ethylene than crude. Nearly 70 percent of North Americas ethylene comes from natural gas. Worldwide, however, crude oil currently supplies 60 percent of the feedstock for ethylene production.
Rappaport foresees no shortage of crude or natural gas, although prices for both commodities have risen sharply since 2002. He predicts crude oil to average $55 to $60 per barrel in 2005 and 2006. U.S. natural gas prices will rise from an average of $7 per million British thermal units in 2005 to about $8 per million Btu in 2006 (compared to just over $3 in 2002).
Crude oil and natural gas are now seen as the same value per Btu by traders, Rappaport noted.
While the raw materials for plastic containers may not be in short supply globally, China is pulling in all the raw materials, Rappaport continued. Chinese imports of plastic resins have risen from less than 10 million metric tons in 1999 to nearly 16 million in 2004. At the same time, China has lowered its tariffs on resin imports from 16 percent in 2001 to about 10 percent today, and those tariffs will continue dropping until they reach 6.5 percent in 2008.
Both Europe and the United States are experiencing an increasing inflow of finished plastic goods – particularly bags, boxes and closures. The United States had a $20 billion plastics trade deficit in 2003 and 2004, including resins and finished products, Rappaport said, and that deficit is growing.
There has been great consolidation of polyethylene producers in the past six years, said Rappaport. Dow Chemical is the top global producer, with 9.1 percent of the worlds capacity, and ExxonMobil is a close second at 8.9 percent. Saudi Arabias SABIC is third with 5 percent.
In North America, Dow and ExxonMobil are first and second in total nameplate PE capacity. Chevron Phillips, however, is number one in high density polyethylene, the polymer most commonly used for motor oil bottles.
Looking forward to 2007 and beyond, virtually all of the worlds new PE capacity is in the Middle East and the Asia Pacific – notably the areas with the greatest and cheapest natural gas capacity. By 2008-2009, said Rappaport, the United States will be a net importer of PE resins, particularly from the Middle East.
Over the next 18 months, prices for HDPE used for blow molding will remain high, Rappapport contends. He sees U.S. prices well above 60 cents per pound ($1,320 per ton) through 2006. Western European prices will be somewhat lower, around 55 cents per pound, and Southeast Asian prices will be lower still, closer to 50 cents per pound in the same period.
However, Rappaport predicts that HDPE prices will drift downward from 2007, dropping below 40 cents per pound by 2010.
Summarizing PE pricing, Rappaport said that, while prices will fluctuate less than in the past, higher average cash costs are here to stay, and PE prices will remain above historic averages. Thus lubricant packagers wont see price relief anytime soon on plastic containers.