New polyolefin capacities are being created, but consumption is expected to be lower compared to the normal growth of 5-6%. Massive plants are being built in the Middle Eastern region, while integrated plants in China and India have advantages of lower labour cost and proximity to the markets. Slower demand along with newer large capacities will inevitably prolong the oversupply situation leading to shutdown, consolidation and restructuring of several olefin and derivative capacities in mature, high cost regions such as Japan, Western Europe and the United States of America. Current outlook of global olefin demand-supply indicates that supply will be in excess until at least 2013/early part of 2014. The Middle Eastern region will usurp the position of leading exporter of polyolefins from USA, Europe and Japan. In fact, both Europe and USA may become net importers. Recession and an increasingly competitive global market is forcing US petrochemicals producers to axe capacity to drive up operating rates and recover profitability, according to BMI’s US Petrochemicals Report. Performance in 2009 has been poor due to the decline in demand from important end-users, namely the construction and automotive industries. In the context of poor demand, petrochemicals production has been weak although there are signs that the market bottomed out by Q3-09. Businesses were still running down inventories amid weak demand, but there were signs of recovery in olefins and polymer resins. The petrochemicals industry is cautiously optimistic, with financial results showing an improvement in Q2 over Q1, assisted by the US government’s stimulus program and the completion of destocking in China, where the Chinese government has launched its own package of stimulus measures. The report expects weak sales volumes for ethylene and its derivatives in H2-09, followed by a gradual recovery in 2010. By 2010, the world ethylene market could have a surplus of 17 mln tons. BMI estimates that ethylene capacity will need to be cut by 3-3.5 mln tpa to ensure cracker operating rates are restored to 85%, necessary to maintain profitability. Dow Chemical is shutting a number of ethylene and ethylene-derivative plants at its US Gulf Coast sites, including an ethylene plant with 390,000 tpa capacity at Taft, Louisiana and Sunoco Chemicals announced permanent shutdown of its 225,000 tpa ethylene unit at Marcus Hook, Pennsylvania. Meanwhile, LyondellBasell’s plan to permanently shut down its 218,000 tpa HDPE plant in Chocolate Bayou, Texas, is subject to legal wrangling with Ineos. The report forecasts that by end-2014, capacities will fall by 1.9 mln tpa of ethylene, with plants with capacities under 200,000 tpa the most likely to close due to their lack of competitiveness on the global market. Between 2009 and 2014, 7% of ethylene, 7% will have closed permanently.
As per SRI Consulting, because it is one of the largest-volume petrochemicals with a diverse derivative portfolio that includes durable end uses, ethylene is often used as a benchmark for the performance of the petrochemical industry at large. As a result, ethylene demand is sensitive to both economic and energy cycles. In 2008, worldwide consumption of ethylene fell 1–2% from 2007. In 2009, production and consumption are forecast to drift lower. Ethylene consumption declined during 2008–2009 would have been worse if not bolstered by Asian demand and its fastest-growing country, China. Growth in Chinese demand should average over 4% pa during 2008–2009. Nevertheless, consumption is expected to be particularly dismal in the mature economies of North America, Western Europe and Japan where demand will shrink 4-7% pa over the next two years.
Ethylene is usually less affected by recessions compared with other petrochemicals, as its principal consumable packaging markets track more stable food sales. However, the current severe economic recession features an unprecedented inventory decline in the supply chain and this has exacerbated ethylene sales weakness in packaging markets. The following pie chart shows world consumption of ethylene:
The largest world market for ethylene is the production of polymers, with the largest being polyethylene (PE). During 2008–2013, polyethylene will continue to be the largest consumer of ethylene, increasing to nearly 60% of total consumption and growing at a rate of 3% pa. Large growth markets include LLDPE at 4.3%, driven by substitution of LLDPE for other polyethylenes in packaging. The largest single ethylene market, HDPE, with 27% of the total, will grow at a less-than-world-average rate of 3.1% pa. Europe and North America have significant production of propylene from refineries, but lack of investments in new refineries implies little scope for increasing propylene output. In the Middle East, development of petrochemicals has been dependent on massive ethane-crackers, neglecting propylene and its derivatives. Globally, more than 25% of new crackers that started up between 2003 and 2007 were based on ethane and produce little propylene. Projected annual demand growth for propylene is expected at 4-5%, driven by strong demand for polypropylene (PP) in emerging markets. Steam cracker expansions/additions cannot keep pace with propylene demand growth. While ethylene growth will be largely satisfied by new 'mega-crackers' being built in the Middle East, their feedstock (primarily ethane), will again make them poor sources of propylene. Though propylene demand is only about half of ethylene, the world is heading to a shortage of propylene from conventional sources.