U.S. plastics producers such as Dow Chemical Co. (DOW:US) will maintain wide profit margins through 2008 as relatively low raw-material costs boost exports and prices, a consultant said.
Ethane-based production of ethylene and polyethylene has been cheaper than naphtha-based production since late 2006 and will remain less expensive for 18 months, analysts from Chemical Market Associates Inc. said today in a presentation in New York. North American producers' use of ethane helped polyethylene exports surge to a first-half record, CMAI said.
Exports also will support prices and profit margins for polypropylene, used in auto parts and carpets, through 2008 because of raw-material costs that are cheaper than in the rest of the world, Houston-based CMAI said. New factories in the Middle East and Asia will depress polyolefin prices and profits from 2009 through 2011, CMAI said.
``Producers have a window of opportunity that we expect to last through the end of next year,'' Nick Vafiadis, CMAI business director of polyolefins, said in the presentation. ``The world really goes long polyethylene in 2009.''
North American sales of polyethylene, used in bags and bottles, rose 1.9 percent in the first half from a year earlier as exports more than made up for a 4 percent drop in domestic demand, Vafiadis said. Exports in the period rose 32 percent, and imports plunged 56 percent, he said.
North American producers were able to boost polyethylene prices as much as 17 cents a pound in the half as plants ran at about 94 percent of capacity, indicating tight supplies, Vafiadis said. Operating rates will drop to about 85 percent in 2009 and 2010 as global supply exceeds demand, he said.
It will be about $600 cheaper to make a ton of polyethylene in the Middle East than in North America this year because of natural gas costs that are the lowest in the world, Vafiadis said. The spread has widened from $100 in 1995 and $350 in 2000, he said.
About half of the world's new capacity for ethylene and polyethylene will open in the Middle East through 2012 to take advantage of lower costs, he said. Most of the remaining new capacity in that time will be in Asia, where demand is rising about 8 percent a year, he said.
Construction of Middle East chemical factories is led by Saudi Basic Industries Corp. (SABIC), or Sabic, and Iran's National Petrochemical Co., Vafiadis said. China Petroleum & Chemical Corp. (600028), known as Sinopec, and China National Petroleum Corp. are leading Asia's capacity increase.
The Middle East will produce more polyethylene than Asia can consume from 2008 to 2012, and the excess will flood global markets and depress prices, he said.
By 2012, North America will become a net importer of polyethylene for the first time, Vafiadas said.
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