The shoe might now be on the other foot (ouch…apologies)
Source of picture: http://5magazine.files.wordpress.com/2010/09/reebok_zigtech_5-570×5371.jpg?w=606&h=570
By John Richardson
NOT so long ago several major producers were evaluating new investments in low-density polyethylene (LDPE), as the almost-serious comment circulated among business development managers that it had become a speciality polymer.
The reasons were:
1.) The boom in demand for coatings, or extrusion, grade LDPE for consumer goods applications such as single-serve pouches. In a country like India, where most people are too poor too even afford a whole bottle of shampoo, demand for these pouches has accelerated beyond the wildest of expectations
2.)The fact that – according to the people we have spoken to anyway– you can only make good coatings grade LDPE on the old autoclave process, which is expensive and difficult to operate. Nobody has built new autoclave capacity for many years
3.)Fantastic margins for ethylene vinyl acetate (EVA), which is used in electronics, toys and sport shoe applications – and also for the encapsulants needed to make solar-cell sheets. Despite the tightness in LDPE, so much-better were the EVA margins that producers switched their plants around (you can convert LDPE plants to instead make EVA)
How the world has changed……..
Consumer electronics demand is extremely weak, according to an analyst with a major investment fund who met with the blog in Singapore last week.
“It is not just EVA that is being affected, of course. All polymers and chemicals that go into electronics are affected. For instance, polyethylene terephthalate (PET) film inventories at one Chinese electronics manufacturer were recently an incredible 180 days, compared with the usual 30-40 days,” he told us.
And interestingly, according to this article in the New York Times, a surge in Chinese solar-cell production has pushed wholesale solar-cell prices down from $3.30 per watt of electricity in 2008 to a current price of $1.20.
This suggests a squeeze on EVA profitability with Chinese solar-cell exporters to the US facing the threat of anti-dumping action, according to the above article.
Some “swing” producers have therefore reportedly swung back to LDPE.
LDPE supply has been further increased through more stable operations at the Amir Kabir LDPE plant in Iran that came on-stream last year. This has combined with weaker demand to result in warehouses stacked-high with Iranian material during September, our colleagues at ICIS news were told.
Demand for LDPE has also taken a hit because it became so expensive in 2010 and earlier this year, resulting in a higher-percentage blending of linear-low density PE (LLDPE) with LPDE for film applications.
The steep decline in LDPE pricing relative to LLDPE began in early June and LDPE continues to struggle. For example, Asian LDPE prices were down by $70-90/tonne compared with $20-60/tonne declines in LLDPE for the week ending 14 October, according to ICIS pricing.
“We have also seen some important technology breakthroughs in 2011,” said a senior industry source earlier this week.
“Previously, good quality extrusion grades could only be made on autoclave LPDE plants.
“Now you can make high-quality extrusion grades – suitable for the flexible packaging marke which includes single-serve pouches – using LLDPE. Two South Korean producers are among those who have achieved this.”
The enthusiasm for new LDPE investments may now be fading a little