A significant amount of petrochemicals capacity is expected to be shut down permanently in the US in the coming years, as producers struggle to compete with suppliers in the Middle East and Asia, Business Monitor International (BMI, London / UK; www.businessmonitor.com) says in its latest US petrochemicals report. Product segments most at risk include PVC, PE and PET. PVC capacity is predicted to fall by 1.7m t/y, or 24%, between 2009 and 2015, while PE capacity is expected to fall by 1.1m t/y, or 7%, over the period, according to the market research company.

In the PET sector, the completion of a 432,000 PET plant by Indorama (Bangkok / Thailand; www.indoramaventures.com) at Decatur, Alabama has heightened concerns of over-capacity. “Producers fear it could negatively impact PET profitability in the Americas, with PET market conditions becoming more challenging as supply additions have exceeded demand growth in recent years,” BMI says. The US PP sector is expected to fare better, aided by a substitution of LDPE. BMI predicts that PP capacity will fall by just 265,000 t/y, or 3%, between 2009 and 2015.

Across the petrochemicals sector, producers are continuing to operate some uncompetitive capacity in the hope that competitors will close their operations. Plants with capacities under 200,000 t/y are the most likely to close because of their lack of competitiveness in the global market, BMI suggests. In the PVC sector, for example, facilities run by OxyChem (www.oxy.com/our_businesses/chemicals) and Formosa Plastics (Taipei, Taiwan; www.fpg.com.tw).

As the US petrochemicals sector faces capacity cuts, particularly for commodity products, companies are focusing on adding value through technological innovation. BMI is predicting increased investment in R&D and technology-driven joint ventures, mergers and acquisitions. Lightweight packaging and the use of engineering plastics as a substitute for automotive components are major areas for innovation, the company says. The growth in R&D should help the US petrochemicals industry sustain its competitive edge in high performance and differentiated products, BMI adds.

Last year, US petrochemicals output grew by approximately 5%, driven by strong growth in PVC and LLDPE production. However, BMI warns that the rebound in petrochemicals production “will moderate in 2011 and 2012, and output may not return to pre-recession levels until 2013 at the earliest”.

PVC output increased by 9.4% for the first nine months of 2010 compared with the same period in 2009, helped by a government stimulus package aimed at the construction sector. This follows a 1.3% decline in PVC output in 2009, caused by the slump in construction.

The North American LLDPE sector benefitted last year from the competitiveness of US products in Asian markets. “LLDPE output has been highly robust and resilient to the recession due to its increased use in a broad range of packaging applications, largely at the expense of LDPE,” the report says. Production of LLDPE grew by 5.1% for the first nine months of 2010, compared with growth of 2.8% for LDPE.

Sales in the HDPE and PP segments were disappointing in 2010, reflecting the lacklustre performance of industries consuming these products, notably consumer durables and automotive. Despite the challenging market, HDPE output grew 1.1% and PP output grew 3.2% for the nine month period, BMI adds.