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Video: Plastics and polymers – The power of supply and demand

03 January 2015 Howard Rappaport

Huge investments in US chemical capacity are being made to take advantage of low-cost unconventional feedstocks. This could lure downstream manufacturers also.

Howard Rappaport

Interview Transcript

What are the implications of the US as a larger producer of commodity plastics?

This is an exciting time in the industry, particularly in plastics and upstream petrochemicals. We're seeing waves and waves of new investment in capacity, here in the US as a result of the explotation of low-cost shale gas and unconventional oil deposits. And this is giving us a much larger position in low-cost feedstocks. So the industry has been investing billions of dollars in new capacity projects over the next several years - it's going to bring a lot more manufacturing capability here to the market in North America.

Does low cash cost position and new capacity translate to lower prices for North American plastics buyers?

Low cost does not necessarily translate into lower price, unfortunately, at this point. Ultimately, yes, we will see lower prices for plastic products here in North America however; at this point manufacturers are enjoying low cash costs in the production of raw material chemicals and plastics, but at this point a lot of that has not yet trickled down to the plastic buyer/fabricator/converter market. Ultimately, once all this new capacity comes on stream in the US market, we should see an easing of prices, and more attractive - more aggressive pricing once all this new capacity is in place. But unfortunately, it takes three, four or more years to build one of these facilities from scratch, and at this point we do have steel going in the ground, we have engineering work being done, but at this point there's not enough critical mass of capacity to have a significant impact on prices this year/next year. But as we get out to '17, '18, '19 and beyond - yes. We should see some easing of plastic's prices as a result of this new capacity.

Will we see a new wave of on-shoring or re-shoring of plastics finished goods manufacturing?

On-shoring or re-shoring of business is a very interesting prospect for the industry in the US. Over the last several decades we've seen a lot of manufacturing business go to other locations that are lower cost, more efficient, more economical, whether it be in Asia, Latin America, or elsewhere. This is a unique opportunity for the industry in the US. By taking advantage of these low-cost energy resources, which translates into more aggressive chemical and plastic prices, there's a real opportunity for the downstream business to bring manufacturing projects back into the US market, taking advantage of low-cost raw materials in conjunction with our efficient, automated processes here, it should be a very exciting time to be a fabricator/converter of plastics in the market over the next five/ten year period. So we could very likely see some business come back to the US market from off-shore as a result of all this new capacity.

Howard Rappaport is senior director, chemicals, IHS Pricing & Purchasing



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