Gulf Coast petrochemical boom contributing to global plastics glut

In the plastics industry, it’s a good time to be a buyer.

The Gulf Coast petrochemical boom and an expansion of the industry in China are leading to an  oversupply of the world’s two most common plastics, polyethylene and polypropylene, according to a new report from the IHS research firm. As a result, IHS projects that prices and profits will fall and  plans to expand or build petrochemical plants will be delayed or scrapped.

The “economics will be challenged in the near term as global capacity expansions exceed demand growth and pressure margins,” said Nick Vafiadis, IHS Chemical global business director for polyolefins and plastics, in  statement.

The U.S. shale boom created an abundance of cheap natural gas, which is used to make chemicals that serve as the building blocks of plastics.  IHS estimates more than 24 million metric tons of new polyethylene capacity — equivalent to one-fourth of global consumption —  is coming online by 2020.  About 8 million metric tons of the new production will come from the United States.

Many new petrochemical plants are  being built near Houston and along the Gulf Coast, but fears of a plastics glut has some companies putting  planned projects on hold indefinitely. For instsance, Houston-based Ascend Performance Materials said it Monday that it would further delay the construction of  its $1.2 billion propane dehydrogenation, or PDH, plant at its Chocolate Bayou campus in Alvin.

The plant, which would make propylene, a primarily building block of many plastics, was originally scheduled to be completed at the end of this year. Last year, the company said it would push back the opening to 2019. Now, it’s been delayed indefinitely.

In the United States,, the American Chemistry Council counts 266 projects planned from 2010 to 2023 that cost $164 billion to build. Texas would be home for 104 of the projects — worth $51.3 billion — and most of those are in southern Texas, including the Houston area. The council expects those projects to result in 15,800 direct new jobs in Texas — not counting construction jobs — and 67,000 nationwide.

Companies including Exxon IMobil Corp., Chevron Phillips, Dow Chemical Co., BASF and LyondellBasell have multi-billion-dollar expansion projects underway in areas such as Baytown, Channelview, Mont Belvieu, La Porte and Freeport. Many will be done in a year or so.

North America and China are now competing much more directly with the Middle East on plastics exports, which should leads to lowered prices and profit margins, Vafiadas stated.

“There will be significant trade imbalances as we see North America and the Middle East both add more (polyethylene) capacity than is warranted for their domestic markets, so exports will be key for producers,” he added.