Piggybacking off of our recent plastics outlook for Q4 2016, we had the chance to sit in on a presentation given by Paul Blanchard, director of engineering plastics for IHS Chemical, for The Right Place/Supply Chain Management Council's Commodity Trends 2017 Outlook.
Whereas Spend Matters contributor John Hall focused more tightly on the drivers of feedstock costs and pricing — ethylene and propylene, for example — Blanchard dove into three distinct markets: ABS, polycarbonate and nylon 6 (and nylon 6,6).
(Although, I'd be remiss not to mention that Blanchard fielded a polypropylene question right off the bat – and late last week we ran a propylene outlook on Spend Matters from our friends at contributing firm Mintec.)
Here are some details and price outlooks behind the three resin markets, according to Blanchard and IHS Chemical.
The story of the ABS (Acrylonitrile butadiene styrene, a common thermoplastic polymer with numerous manufacturing applications) market can't really be told without Asia.
- 83% of the consumption is happening in Asia and mostly in China
- Demand rebound in 2010 led Asian producers to add 1.5 million metric tons of new capacity. All of this capacity was running around the world looking for a place to sell. For the future outlook, demand has dropped off through 2020 – capacity announcements have been speculative, and a new plant is coming up in Saudi Arabia but won't start up until next year.
- According to Blanchard, the operating rate of production is a key indicator. "We look at it quite closely for global ABS, and we don’t see it coming back," he said, so “not much to worry about with runaway pricing for the next year," especially because over the next 3-4 years, prices will be under pressure from overcapacity.
- ABS regional price outlook: with the above context, since domestic suppliers are willing to keep business by keeping prices where they are, IHS forecasts the North American ABS price just north of $2,000/mt; the European price just below $2,000/mt; and the Northeast Asian price somewhat below the EU price.
The same can be said for the polycarbonate market regarding the Asia Effect, although the Middle East shares the spotlight as well.
- The two biggest 2016 polycarbonate producers are SABIC and Bayer
- Capacity additions in 2011 and 2012 were ahead of global demand growth, and hence oversupply led to falling margins. Those margins for the poly industry were around $200 per ton — which, according to Blanchard, does not begin to pay back the investments of these businesses, making the situation untenable. Therefore businesses had to go about 'right-sizing' over the four years after 2012.
- According to Blanchard, although maybe not right away, "there might be a buyer's market coming." That's because as a buyer, one would have an opportunity to buy material that used to go to China (since the U.S. exports 30-40% of its poly there). As it happens, poly is one of the "chosen" subsidized industries that Beijing has said, through its latest 5-year-plan, should receive increased investment.
- Polycarbonate regional price outlook: holding in a range above $3,000/mt for North America through 2017, with European and Chinese prices holding pretty close together well below that.
- It’s largely a fiber business — 66% of global consumption is fiber (nylon 6 fiber, nylon 6,6 fiber)
- This is a wide-open, diverse industry with many players. Most nylon 6 producers and capacity is in China
- The global operating rate is in retreat, and many plants in China are not really running (the rate will be around 50% in 2017)
- Will there be an advantage for domestic buyers? Is there an arbitrage opportunity? Probably not, in Blanchard's view. A big barrier is that Chinese companies are not really externally focused — they're not actively out there looking for customers, as many of them are in the business of making just the base resin, which many U.S. buyers are not in the business of buying.
- Nylon 6 regional price outlook: prices will go up next year in North America (into a range between $2,500 and $3000/mt), while EU and Asian prices will hover in the general vicinity around $2,000/mt, or even fall.
Bonus Round: Nylon 6,6
- Ownership is very concentrated
- Geographic demand is relatively balanced (it's not all going to Asia, for a change)
- There are technology barriers to new entrants
- There's a performance overlap with nylon 6 in engineering applications (in general, prices of nylon 6 and 6,6 historically tend to stay within 10 to 25 cents of each other).
- Because of fewer players, this market has been better managed as far as capacity is concerned. Invista is closing a plant in Chattanooga, but also started new plant in Shanghai — closer to where the firm sees their main customer base. A Saudi Arabian plant has been built, but is still not producing any resin.
- Nylon 6,6 regional price outlook: prices should come up next year and hover somewhere around $3,000/mt for the next few years, unlike in ABS and polycarbonate markets.
Overall takeaway from Paul Blanchard? "We’re very cautious forecasters, so don’t take my pricing outlooks as gospel — go out and kick the heck out of your supplier,” he said.
If you're a plastics buyer or category manager and would like more clarification and/or actionable info direct from the source, surely Paul and his team would appreciate your contacting them. Our thanks to him and IHS Chemical for an enlightening presentation.