Not as bad as expected

Departments - Plastics

The growth in virgin PE capacity may not have quite the negative effect on recycled material as first predicted.

April 12, 2017

*Producer price index is based on December 1980 average prices as 100; source: U.S. Bureau of Labor Statistics

“While prices will come down, it’s not going to be as bad as we originally thought,” Joel Morales, the Houston-based senior director of polyolefins for the Americas with IHS Markit, which is headquartered in Englewood, Colorado, said of the impact of new virgin capacity coming online in the United States. Morales was among the speakers who addressed the state of virgin plastic production and its potential impact on recycled plastics during a plenary session at Plastics Recycling 2017, which Resource Recycling hosted March 6-8 at the Hyatt Regency in New Orleans.

“In general, new expansion of virgin resin production is not good news for the recycled business in the near term,” Morales told Recycling Today in late 2016. At that time, IHS was forecasting downward price trends as the result of new capacity, which he describes as “unprecedented,” being introduced over a three-year period.

“What happens in prime [markets] has a direct relationship to what happens in recycled [markets],” Morales said during the conference.

From 2016 through 2017, approximately 3 million metric tons of virgin polyethylene (PE) production capacity are slated to come online in North America, Morales told Recycling Today in late 2016. Most of the additions will occur on the U.S. Gulf Coast and will include legacy players like ExxonMobil, Dow Chemical and Chevron Phillips Chemical. The additional capacity is being built not only to respond to growing North American demand but also to focus on export demand, with Morales saying in late 2016 that a “significant amount will be earmarked for export.”

Of these projects, according to Morales’ presentation during Plastics Recycling 2017, the Chevron Phillips plant in Old Ocean, Texas, will have two reactors producing 1 million metric tons of traditional high-density polyethylene (HDPE) products plus linear-low-density polyethylene (LLDPE) metallocene film. The Exxon Mobil plant in Mont Belvieu, Texas, will produce 1.33 million metric tons of PE for export only, while the Dow plants in Freeport, Texas, and in Plaquemine, Louisiana, will produce 400,000 tons of LLDPE and 350,000 tons of low-density polyethylene (LDPE), respectively.

“While prices will come down, it’s not going to be as bad as we originally thought.” – Joel Morales of IHS Markit on the impact of new virgin PE capacity

Morales said to expect imports of virgin material into North America to continue in 2017 as domestic demand grows steadily. Export demand also will show growth for the year.

He predicted potential delays in new investments in capacity in light of feedstock uncertainty, which could raise the floor on virgin prices. Morales said margins will be historically good but will not quite support reinvestment.

While Morales said more virgin PE will arrive on the market, it will have less of an impact on global prices and margins than previous forecasts predicted. He said this would be good news for recycled material.

In North America Morales said polypropylene (PP) often is treated as a byproduct of the PE or of the refining business. In part this is why PP has been a “lousy” business in the region, he added.

No new PP greenfield capacity will be realized in North America until the end of the decade at the earliest, Morales said, leading to higher prices in the meantime, which would be good news for recycled PP.