As a result of the shale gas boom in North America, a significant amount of new polymer capacity is coming on line. Much of this production will be exported, and three trends suggest that US plastics customers will benefit from the bounty of low-cost feedstocks and an abundant supply of domestic resins, write David Yankovitz and Paul Bjacek of Accenture in an article.

Over 23 billion pounds per year of new polymer (including PE, PVC, ABS, PET, PP, PS, EPS) capacity is likely to come on-stream in the US by 2020, most justified based on low cost gas. This will allow the US to be the second lowest cost region in the world for products such as polyethylene. If all were to be used domestically, its calculation would mean adding 2,000 to 10,000 new plastic processing lines, depending on the type of plastic, process and application. However, much will likely be exported, said the article.

The report also suggested that US plastics customers, that is, plastics processors (those that buy raw plastic resin and convert it to various products, like packaging materials, pipe, bottles and other finished products) will be able to share in the bounty of low-cost feedstocks and abundant domestic resins production.

Processors are betting on the home market
The analysis indicates that domestic plastics processors (or “converters”) are gearing up to take advantage of the inevitable favourable price and volume position of North America when the new polymer plants start up. About 60 per cent of plastics processing machinery used in the US is imported. Imported machinery data is, therefore, a very good barometer of plastics processors’ investment sentiment. Encouragingly, plastics and rubber machinery imports grew 9 per cent per year between 2010 and 2015, with important items such as injection molding machine imports growing by up to 16 per cent per year. This is consistent with American Chemistry Council analyses that indicate more than 500 plastic processor expansions have been announced since mid-2012. In fact, new equipment purchases are rising much faster than the capacity utilisation increases in plastics and rubber products production.

The article said that this phenomena is mainly related to the shale gas advantage and to plastics processing in particular.

The US has advantages versus other economies in terms of the current exchange rate, making equipment costs lower (imported aggregate plastics machinery values dropped 31 per cent between 2010 and 2015), as well as an improving total labour cost differential with China, where China’s relative labour cost rose 36 per cent over the past six years, as those of the US declined by 6 per cent. It could be that processors were taking advantage of the low equipment prices based on exchange rates. However, we believe the manufacturing renaissance, where automation reduces the importance of labour costs, is a real occurrence, although muted a bit due to poor world economic growth.
 
While these low labour and equipment costs bode well for US manufacturing, plastics processing is doing even better. As a matter of fact, after several years of weaker performance versus total manufacturing, plastics processing has outperformed total manufacturing output in the US since the end of 2011, as shown in Figure 5 by the ratio of plastics to manufacturing output. Manufacturing grew by 1.8 per cent per year between December 2011 and December 2015 versus 4.1 per cent per year for plastic products manufacturing.

The price gap
The gap of US domestic plastics prices versus those of Southeast Asia has been widening over the past few years. As new North American capacity comes on-stream and domestic producers battle for market share, domestic prices may move toward the levels of the largest importing region, Asia. This would narrow the competitive gap between Asian plastics processors and those of the US, and allow US processors to push back on imported plastic products, increase exported plastic products and raise plastic products production beyond the old growth rates of 4 per cent to 4.5 per cent per year.

Avoiding missing the local bus versus the export boat
North America holds strong prospects for growth, especially in megatrend-linked markets. For instance, over the next five years, US gross output in construction, consumer electronics and medical equipment is expected to grow over 4.5 per cent per year. Innovative plastics applications geared towards these markets can even experience higher growth. The aging population, for example, is requiring more healthcare-related products that can assist in mobility and convenience. Strong, lightweight materials can enable electric mobility devices to do more with less energy.

North American polymer producers must prove the worth of their business to these demanding domestic customers in order to maintain market value and share. As assessed in a past blog, producers must innovate in product, service and efficiency to serve the high demands of domestic customers. For instance, some innovations of value to automobile manufacturers’ include the integration of electronics (like sensors) into plastic trim, adding colour to parts that eliminates the need to use paint, making rapid changes to specifications and supplying global needs with consistent product.

The US finished goods manufacturers that surviNorth Americaved manufacturing offshoring trends in the early part of this century are the most nimble, efficient, resourceful and demanding of resin suppliers, the article says.
 
* David Yankovitz is a managing director at Accenture and leads its global chemicals practice; and Paul Bjacek is Accenture's research lead for chemicals and natural resources. – TradeArabia News Service