Since January 1999, crude prices have moved up 645 percent, Rumsey said. Resin pricing has become reactionary as a result of huge margin loss potential from monomer moves. Resins wait, so theyre always in arrears, he noted.

Exports of polyethylene and polypropylene are the biggest variables for the U.S. supply-demand situation. Any excess supply is headed overseas, said Rumsey. Strong export demand last year kept domestic inventories in check, and 2008 is expected to be strong for exports to the Far East, although that isnt yet the case.

It used to be that blow-molded polyethylene and natural gas prices followed each other, Rumsey noted. But in April 2006, high-density polyethylene (HDPE) prices worldwide began to track crude.

Global crude demand, led by China, has grown one to two million barrels per day each year since 2000. Crude demand has proven to be relatively inelastic to price, rising steadily despite a quadrupling of the market price, Rumsey said. It may take a global recession to achieve a major correction from the demand side.

Tight ethane markets due to continued strong U.S. ethylene demand will tend to drive ethane prices well above the natural gas price floor through 2008, Rumsey continued. North America should remain ethylene-production-cost-competitive with all regions except the Middle East.

Rumsey predicted three possible 2008 scenarios resulting from todays energy volatility and shortage of new energy production. First, he said, is a global recession. In this worst-case scenario, U.S. decline impacts other regions. Energy demand is curtailed enough that crude prices structurally decline to the range of $65 to $75 per barrel.

The best-case scenario, Rumsey continued, would see economic growth continue at rates similar to 2005 to 2007. Demand would continue to increase, and crude markets would drift higher, looking for a demand destruction point, either a recession or significant consumer behavior change, at prices above $100 per barrel.

The most likely scenario, however, is a continuation of the current situation, in which a flat U.S. economy has only a modest impact on Asia and Europe, Rumsey said. The increase in crude demand would slow, leaving average crude markets in the range of most current forecasts, at $85 to $95 per barrel. But, he cautioned, be careful making decisions based upon short-term trends in energy pricing.

PE Outlook
Global polyethylene demand is expected to grow at an average annual rate of 4.7 percent to 5.3 percent over the next 10 years, said Rumsey. Hefty, but most of that growth is overseas. Demand growth is expected to be ahead of capacity growth through 2008, keeping markets tighter than in the recent past. The next wave of capacity additions in the Middle East and Asia will lower operating rates beginning in 2009 to 2010, but I dont see polyethylene prices falling as long as oil stays high.

Capacity and demand are expected to remain in a very tenuous balance, as forecast demand growth exceeds new PE capacity additions in 2008, further tightening markets. Given the global markets and limited North American ethane supply, he continued, crude oil and naphtha pricing will be the key cost indicators.

North American PE demand is expected to grow more slowly, at an average annual rate of about 2.5 to 3.5 percent over the next 10 years. There is no new North American capacity planned to come online, Rumsey stressed.

On a feedstock-cost basis, the global playing field is becoming more level, Rumsey contended. North America should see strong export demand through 2008, although new Middle East PE capacity will limit U.S. exports beginning in 2009. And Middle East exports will go to Asia, then to Europe, not to the United States.

What pricing trends can lubricant packagers expect in 2008? Rumsey predicted HDPE resin prices to rise up to 3 percent in the first quarter, then fall back by 2 to 4 percent in the second quarter. The latter half of the year is likely to see flat pricing, he concluded.

Rexam is a U.K.-based supplier of consumer packaging, including plastic closures and containers. It reported over 3.6 billion in sales in 2007.