Executive Briefings

Oversupply of Two Common Chemicals to Stall Petrochemical Plant Expansions

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 report from the IHS research firm. 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 a 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.

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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 report from the IHS research firm. 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 a 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.

Read Full Article