Two weeks ago, we looked at the depressed steel market. Another great economic indication is the world economy is the plastic market.
Global production of plastic has been steadily increasing over the past twenty years and currently amounts to around 290m tonnes per year. Asia dominates global output with over 40% of the world's supply. China is the world's largest producer, with 24%, followed by Europe and North America with just over 20% each. The packaging sector as a whole accounts for about a quarter of all the plastics produced in the US, while in Europe it accounts for almost 40% of the total plastic demand.
Polystyrene (PS) is one of the world's top 5 most commonly produced plastics. It is a polymer made from the monomer styrene. Styrene is typically manufactured from ethylene and benzene, which itself is ultimately, typically derived from either natural gas (US and Middle East) or crude oil (EU and Asia).
A rise in the availability of natural gas, due to the growing use of hydraulic fracturing (fracking) has encouraged polyethylene manufacturers to increasingly use natural gas-based ethane as a feedstock, but since the ethane from natural gas produces less benzene than crude oil-based naphtha does, this has played a role in raising polystyrene feedstock prices, due to the resulting global tightness in benzene supply. Two new PS production facilities are now online in China, adding 0.3m tonnes per year of supply to the market, which will help to ease the local marketplace.
Globally, polystyrene prices have diverged across the regional markets driven by feedstock availability and pricing. The slowdown in global economic growth has decreased polystyrene demand in the US and EU. In the US, against the market, prices are expected to rise due to feedstocks being increasingly less available, thanks to cheap natural gas.
Amidst the current global economic uncertainty, demand for plastics per capita is nevertheless still expected to show steady growth of around 4% year-on-year, and this is expected to be primarily driven by demand from emerging economies in Asia, Africa and South America. Overall, we are unlikely to see any seriously sharp price rises as overall consumption is expected to be lower than last year, although we might see a shift in important and exports, to beat regional trends.