The worlds burgeoning middle class has a voracious appetite for polymers and this has compelled other regions of the world to execute a refining and manufacturing buildup that will cause an upcoming oversupply situation. In particular, Middle Eastern and Asian PE and PP capacity will take a sharp upturn, shifting supply patterns and causing margins to fall. Demand for North American (NAm) polyolefin (PO) products will enter what is projected to be a permanent decline as capacity and market share shifts to other longitudes.

Fortunately for US interests, many PO producers have anticipated this and have diversified through significant structural changes increasing access to the far regions of the world. This fact alone should buffer the upcoming downturn in the industry. Projections I have seen suggest that the NAm PO market should be back up to present levels by 2012 as the new capacity operates as price taker rather than a price maker. Eventually for NAm and the EU, finished goods imports will overtake market growth and a period of decline will ensue.

The new world I am describing is projected to happen in 2009. We are about to feel the gravitational pull of the “New Gulf”. The Old Gulf- Gulf of Mexico- will take a back seat to the Gulf in the Middle East.

One weakness of the New Gulf seems to be ethylene. US capacity for the extraction of ethane from natural gas and its conversion to ethylene is an advantage that will buoy NAm PE business for a while. But once Middle East and Asian operators learn to run their plants efficiently, NAm facilities will face the somber truth of the marketplace. NAm will become a net importer of PO’s. 

Asian demand for PO’s is growing so rapidly that it may never become a net exporter of PP and PE.

One factor that I do not understand yet is the effect on petroleum supplies and the cost pressures therein. Increased capacity giving lower prices could increase petroleum and gas scarcity resulting in increased prices of petro-energy.