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The world polyethylene (PE) business is undergoing rather extensive restructuring and consolidation. A number of mergers and acquisitions, alliances and joint ventures have recently taken place, designed to improve competitiveness, reduce costs, expand scale, enhance market position and expand geographic coverage.
In addition, the construction of new projects in the Middle East and China in the last three years increases fears from existing producers outside the low-feedstock-cost region that a major downturn will occur when all the new capacity is on stream by 2009–2010.
The increasing cost of ethylene, driven by a sustained high crude oil price and the inability of converters to pass on the full extent of such large price increases, makes the traditional margin fluctuations a thing of the past with expectations that upstream integration is becoming an essential component of the economic success of PE operations outside the low-feedstock-cost areas.
In the current new business model, an asset foothold in the Middle East has become an essential component of business success, while owning technology and a large economy of scale have become a common goal for most producers.
Consolidation continues to be one of the leading issues facing the industry. It is a natural response to economic conditions that occur as products become commodities and interact with business cycles. The result of consolidation is fewer and larger players and less fragmentation and an increasing focus on technical competencies.
The short-term outlook for PE indicates that from the middle of 2008, LDPE, HDPE and LLDPE will have increments of capacity larger than increments of demand, with the result of a declining utilization rate. LDPE and HDPE will be the two products in larger oversupply, while LLDPE shows the best supply/demand balance among the three.
This report provides historical data on linear low-density polyethylene (LLDPE) production and consumption with 2007 as the base year for supply and demand information and a forecast of production capacity and consumption to 2012. Geographical coverage is focused on North America, Western and Central/Eastern Europe, Japan and the Middle East. Summaries for LLDPE supply/demand data are included for Central and South America, Africa, Other Asia and Oceania. Many producing and consuming country official statistics, particularly trade, still do not distinguish between LLDPE and low-density polyethylene (LDPE) for reporting purposes and combine the two as LDPE. This report provides product balance LLDPE-only statistics. Capacity reporting also presents some complexity due to the allocation factor of the swing capacity to LLDPE and HDPE for each plant. While all the capacity tables report the total swing capacity, the LLDPE allocated capacity has been reported in summary in each country table.
LLDPE has established itself as the third major member of the world polyethylene business along with LDPE and HDPE. The following pie chart shows world consumption of LLDPE:
The largest influence on future global LLDPE growth rates will be world economic growth. The replacement of LDPE down to hard-core levels is now limited to Asia and the rest of the world, as in North and South America, Europe and Japan such penetration appears to have substantially slowed. The fast growth of catalyst development activity has also created the possibility of penetrating new nonpolyethylene markets (such as PVC, metals and paper), some of which may include higher-value products. Material substitution will continue and new LLDPE products will create additional market opportunities. One offset to volume growth is the continuing trend toward downgauging, which is expected to have a small negative impact on consumption growth.
World demand should be sustained by good growth for LLDPE and moderate growth for PE. However, the International Monetary Fund (IMF) has been forecasting a slowing of economic growth in the world during 2007–2010, which in conjunction with the impact of high oil prices will have a negative effect on the demand growth rate. Reasonably good market growth is expected, built on consumer confidence in the world’s ability to recover after the Iraq war.
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