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# A-90-1 9



# i



# Readyfor the rebound |«v>Vull-l-7 5



# I t seem s th e commodit y plasti c industr y ca n neve r

get it s capaci l balancin g ac t

quit e right. Follo v in g tw o o f it s best-eve r

year s i n 1967 a

n 

### iffaa.' arus ho

f wm mu.i.:ii

y Luupi c wit hinsufficien t

deman dhav e push' e the_sector_back

int o agow n cycle , a

n Rave tumble dback " l o 198 4 m le v ajgin s n vels~ ' S o h o w ba dha s i t

reall y become ? T l dramati c perio do

f stoc k liquidatio n \ convertor s i n earl y 1989 , whic htemp« rarily stifle ddeman dan dpu t pri o int o atailspin , i s no w over . Produc e hav e tune doperatin g rate s t o bette r s u demand , an dane w balanc e poin t h ; bee n reached
. Yes , th e situatio n i s b a bu t i t i s no t expecte dt o get

muc hwors e Th e industr y can no w settl e dow n four or s o year s o

f relativ e stabili l durin g whic hpoo r

margin s wil l li n investmen t

i n ne w capacity
. But

po l mer s deman dcontinue s t o grow , ai eventuall y th e marke t

wil l tighten , shortag e o

f materia l wil l driv e \ prices—and , hence , profitability—ai histor y wil l repea t

itsel f onc e again
. On e commo n explanatio n fo r t l caus e o f thi s lates t

downtur n i s t

l sudde n withdrawa l o

f Chin afromt

] marke t towar dth e en do

f 1988
. c v acollaps e i n expor t

price s that

back < u p throug hth e system . But althoug ht Chin amov e wa s undoubtedl y atxigg

th e slid e wa s stil l a

n inevitabl e outco i of overbuilding
. "Polyolefi n deman di n 198 7 an d1 9 wa s very strong—orwasit?"asksRob « Bauman , consultan t

a t Che mSyste i (Tarrytown , NY)
. "I n retrospect , t statemen t shoul dbe , polyolefi n set wer e very strong. " H e contend s tha t 1 1 concep t i s crucia l i n understand ! consumptio n trend s an dthei r effect futur e profitability fo

r th e plastic s dustry
. A s th e marke t

near s abalanc e 1 twee n effectiv e capacity an ddema i a s i t di di n 1988 , customer s ca n longe r get immediat e delivery o

f w the y order , an dprice s start t o ri Consumer s start

buyin g mor e tha n tl nee di n anticipatio n o

f highe r price s nex t month , an dinventor y build s alon g th e end-us e chain
. Sometimes , fabricator s wil l orde r mor e materia l an dthe n sel l i t a t ahi g price ; th e proble mfo

r producer s distinguis hwhic hsale s constitut e " n demand
. Withth e myria den duse s plasti c materials , tru e deman di s am riously difficul t

numbe r t o obtain , sale s figure s ar e often th e bes t har d1 available
. "Durin g thi s perio dawindo w o f portunit y opens . Face dwit hstrong , r .P. 3



# 7 f * > " * > 'J3 

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# SPECIA L REPOR T

-"ty plastic s ^et it s capacit

y e right. Follow : 'ear s i n 198 7 ana

* apacity covipleV

j indhav e pushe d dow n cycle , an d dbac k t o 193 $ dl y become ? Th e : k liquidatio n b

y 9 , whic htempo
an dpu t price s over . Producer s ate s t o bette r

sui t alanc e poin t

ha s situatio n i s bad ; ge t muc hworse . ) w settl e dow n t

o elativ e stability
. argin s wil l limit pacity
. Bu

t poly

le s t o grow , an d t wil l tighten
. A wil l driv e u p •rofitability—and el f onc e again
. J tlanatio n fo

r the downtur n i s th e f Chin afro

mth e i o f 1988 , causing •rice s that backed .Bu t althoug hth e Dubtedl y atrigger
. levitabl e outcom

e di n 1987and198 8 a s it? " ask s Rober

t a t Che mSystem s n retrospect , th e

. polyolefi n sola contend s tha

t thi s n understandin g m dthei r effec t o n •iT th e plastic s in

- •Jt v . • ar s abalanc e be

cit y an ddemand , rustomer s ca

n n o delivery o

f wha t ce s start t o rise- ; n g mor e than the

y f highe r price s the
. •entor y build s « P 

### ain
. # 9 itor s wil l order

ye* msellitatahighe r or producer s * £ e s constitut e "rea

l f vria den duse s V* >demandisanoto-

- ;be r t o obtain
. J»»
. •th e bes t har dda » ) dawindo w ofop;
. •dwimstiong,p l0 \ liable cas hflow , man y companie s

Uiickly pla n an dapprov e ne w capacity ^aSs do n projection s o f

sale s an dno t ictual demand, " say s Bauman
. Thus , a larg e amoun t o f ne w capacit y i s an nounced , wit hstart-u p date s usuall y iritiii n tw o year s o

f eac hother , an d overcapacit

y i s projected
. But onc e ther e i s atrigge r

t o pus hth e jnarke t of f it s pea k an dint o adecline , converter s begi n t o liquidat e thei r in

tentories , thi s tim e i n anticipatio n o f jowt? r prices
. A s sale s fal l of

f dramati

call\ , producers ' inventor y begin s t o build , forcin g acutbac k

i n operatin g •ates , an dagenera l sens e o f disarra y prevail s i n th e marke t

a s i t di dthi s year . Wit hadeclin e i n profitability , th e pumpe r o f ne w plan t

announcemelil s hasjallen fro

mafloodt o atrickle
. Almos t al l announce daddition s ar e expecte dt o com e o n stream , bu t

producer s may tr y t o dea l wit hoversuppl y problem s b y delaying facilities , or

replacin g older , 

# 'Plasties can help solve the dilemma of

solid waste disposal'

les s profitabl e unit s a s ne w one s star t up . "Th e resul t

o f ne w capacit y i s tha t

w e wil l undoubtedl y se e som e closures, " wy s Willia mKuhlke , vic e presiden t a t consultant s D e Wit t

& Co
. (Houston)
. "Pr e ~:t s wil l b e lea n generall y bu t coul d b e nonexisten t

fo r som e higher-cos t units , an dit

wil l promp t

producer s t o mak e capacit y cut s whe n the y se e th e re dink. " Overcapacity remain s th e bigges t Proble mth e industr y wil l hav e t o dea l *ithdurin g th e nex t

fe w years . Thoug h fais wil l kee p profitabilit y a t alo w eb b ^ojjgh~tKe " earl y i-jijus ^ underlyin g deman dlo r plastic s i s strong^dJl dsiilr



### Po^-ng , ari dther e i s n o sig no f an~ y •t?Veisa i uTthat trend , fleS'pTfe'environfreHaTpTgSiJsll'aagaiiu. 1 plastie s use " BuTin th y L'a5< ! U f th e curren t

dow n tycle, economi c indicator s remain good ; ^ least , ther e i s n o sig n o f arecessio n J^ t Even i f plastic s " demand " base do n 'scent sale s figures look s prett y poor , ^d-us e deman di s stil l holdin g u p well , *B dthat , combine dwit hcompletio n of ^ e i : ventory correction , shoul dse e th e marke t stabiliz e i n 1990
. Withth e in

ventor y correc tio n no w over , producer s an d convenor s hav e brough t stoc k level s bac k

t o acceptabl e condi

tions , an dplastic s deman dha s re coveredt o nor malit y sinc e Oc

tober
. Despit e th e usua l year-en dFo

r plastic s producer. , slowdow n i n sales , fabricator s expec t t o b e orderin g norma l quantitie s durin g th e first-quarter

o f nex t year . I n fact , man y observer s se e 199 0 a s bein g a n especiall y stron g year fo r plas

tic s demand
. Substitutio n fo r wood , glas s an dothe r materials , whic htend s 10 Sto p wt T e n price s are movin g up , wil l irT

creas e i n th e curren t

sorter market
. Kea

l deman dfo

r th e comin g yea r

i s projecte d b y man y observer s t o excee dtha t o f banne r year s 198 7 an d1988
. Bu t wit hth e retur n t o abuyers ' mar ket , seller s wil l hav e t o chang e market

in g emphasis
. Wherea s las t year com modit y resin s wer e fully sold , curren t oversuppl y i s promptin g mor e competi

tio n amon g producers
. "The y mus t switc hbac k

t o th e traditiona l situation , wher e qualit y an dcustome r relation

ship s ar e criticall y important, " Bauma n observes
. Th e lowe r

profitability o

f commod

it y polymer s i s expecte dt o promp t plas

tic s producer s t o seek

technolog y im

provement s an dt o increas e researc h an ddevelopment
. Innovation s i n proc es s technolog y wil l b e sough t t o en sur e lowes t

possibl e productio n costs , a s wil l th e developmen t

o f specialt y resi n grade s aime da

t higher-valu e nich e markets
. I n additio n t o replacemen t of tra
ditiona l materials , man y o f th e spe cialty grade s can replac e engineerin g polymers , particularl y wher e appli

cation s hav e bee n overspecified
. On e exampl e woul db e ne w ultra-hig h impac t P S grades , whic har e replac

in g acrylonitril e butadien e styren e an dpolycarbonat e i n applianc e an d automotiv e applications
. Meanwhile , th e commodit y poly

mer s als o continu e t o b e substitute d fo r eac hother , mainl y o n pric e grounds
. High-densit y P

Ean dinjec

tion-grad e P P ten dt o replac e eac h othe r i n man y basi c consume r

good s applications , dependin g o n whic hi s cheaper , whil e ther e i s increasin g th e outloo k i s Improved . substitutio n b y eithe r

produc t fo r cost
lie r P S i n th e packagin g area . In addition , work

i s movin g forwar d o n technolog y development
. Nove l en gineerin g polymer s an delastomer s forme dfromth e copolymerizatio n commodit y comonomer s shoul dfin d som e entirel y ne w markets
. Leadin g i n thi s fieldare Himon t

[Wilmington , DE) , wit hit s Catallo y technology , an d Exxon' s (Darien , CT ) Exxpo l catalys t system . Althoug hcommodit y resi n price s ar e no t prSfgiJUj dt

u mov e u p thi s yea r margin s shoul dbegi n t o improve , espe ciall y fo r noninfegrate dproducers
. Whil e plastic s tab s ar e startin g t o bot

to mout , monome r

price s ar e stil l fallin g steeply , an dobserver s feel tha t num ber s wil l continu e t o b e drive n dow n durin g th e comin g year . Benzen e an dstyren e price s hav e bee n buoyecTby recen t

suppl y problems , fiu

t th e genera l tren dfo

r monome r

labtTi. s down
. Ethylen e an dpropylen e price s arestHTtallingand'aTelikelvtotakeafii g hi t a t th e en do f 199 1 an dth e beginnin g

Decembe r20/27

. 1989/Chemicalwss k 1 9

# SPECIA L REPOR T

CHEMI C A L WEEK : BUYERS V I'GUIDEtdeliveVsSualified'saie s • Head s an d order s a t a n incredibly ^ ynexpensive , s cost* * Eac h •.-.yearf c ^hundred s o

f million s o

f dollar s of f * busines s ar e generate d through ;

* - Y \ '•^.•.tV*-si* - \,^-^.j. - ***-^--*--^

. " <£•&"•' '•••« * o f 199 2 whe n ne w monome r capacit y startscomin g on-lirie T Polymer s hav e take n th e brun t of pric e cuts , an dmonome r tab s ar e no w unde r pressure . Polyme r

producer s sa y the y wil l hav e t o rei n productio n unles s monome r price s fall
. ty~\ In th e case o

f polyethylen e (PE) , th e marke t i s currentl y showin g astron g short-ter mrecovery du e t o th e recen t explosio n a t

Phillip s 6 6 (Bartlesville , OK ) facility a t

Pasadena , TX
. Th e blas t too k ou t som e 18 % o

f high-densit y PE capacity , an dth e tightenin g effec t ha s allowe dproducer s t o lev y a3 ct- 5 ct/l b increas e thi s month
. Accordin g t o Philli p Townsend , presiden t o f Philli p Townsen dAssoci- J ate s (Houston)
. P

Edeman dha s recov ere di n earnest . Deliverie s gradually* )

ru n down
. Bu t

order s picke du p sharpl y i n Octobe r

an dar e projecte dt o remai n health y i n th e first-quarte r 199 0 (se e chart, p. 22). Althoug hP

Eproducer s sa y mor e pric e increase s coul db e i n store , tab s ma y wel l di p agai n late r thi s year . A retur n t o oversuppl y i s i n th e cards , 1 wit hamajo r

slu g o f ne w capacit y du e o n strea mnex t

yea r that wil l mor e than " compensat e theToss"bf

Phillips' s capac- . it y (se e table, p. 19} an dkee p price s unde r pressure . "I n th e shor t

run , supply/deman d balance s wil l dictat e price s fo r polyeth

ylen e , " say s Gre g Bedel , directo r o f mar ketin g for

polyolefin s a t

Quantu m Chemica l (Ne w York)
. "However , there' s n o wa y tha t deman dwil l increas e suff j cientl y t o offse

t al l th e ne w capacit y d u o n strea mi n th e U.S
. nex t year. " Willia mJoyce , presiden t of Uni o Carbide' s (Danbury , CT ) polyolefin s d : vision , caution s agains t

rushin g ne w ft cilitie s o n stream . "I t

woul db e helpf

i t o th e marke t

if producer s thin k

abo i timin g very carefull y whe n phasin g i ne w units
. Wit hth e prospec t of ov e supply , i t woul dals o b e wis e t o co i side r closin g obsolet e capacity. " C Relativel y littl e polypropylen e (P l capacit y i s du e o n strea mi n th e IL ' durin g 1990
. althoug hD e Witt' s Kuhl l point s ou t

tha t atota l o

f 2 6 ne w F facilitie s are du e o n elsewher e i n tl world
. Tha t

wil l caus e amajo r

redu tio n i n U.S
. expor t

opportunitie s fo

r P ^ i n earnest . Deliverie s gradually w th e mos t export-oriente dpolyme r i n t l decline ddurin g 1989 , relativ e t o on e ' lU.S
. wit hu p t o 20 % of outpu t plac t year ago , whil e consume r

stock s wer e overseas .

Short-term , P Pexpor t

market s a showing " som e recovery . ~ JIh e inv e tor y situatio n ha s bee n corrected , a P Pexpor t price s hav e com e up, " no t To mLongmire
. vic e presiden t a genera l manage r

o f th e polymer s « partmen t a t Amoc o (Chicago)
. "W e 1 liev e ther e wa s rea l growt hi n th e i mesti c marke t

thi s year , an dw e thi n wil l b e stronge r

i n 1990. " Ke n Dowd , directo r

o f marketin g Himon t US A (Wilmington
. DE)
. sh a tha t bullis houtlook
. "Deman di s str c an dw e hav e alread y see n pric e incre i i n expor t markets, " h e says . "Pro d tio n rate s ar e high
. an don e coul dsp . lat e tha t a s \y e g o int o 199 0 th e situa ' shoul denabl e som e increase s o n

2 0 Chemicalweek/Decembe r20/27.198 9