“Excess capacities, high energy/feedstock costs and softer prices due to weaker demand”- that sums up 2001 for plastics.

The weaker US economy not only had an adverse impact on plastics consumption in US or North America, but had a stronger impact on other economies like that of Europe and Asia. The continuing recession in Japan did not improve the situation. The three largest economies – US, Europe and Japan did not show any growth of plastics in 2001. Whatever growth was observed in European market was completely offset by the loss of volumes in North America and Japan. China and to some extent the other Asian countries including India, did have somewhat lower growth compared to the earlier years. The Asian region along with other economies helped in achieving a smaller growth of about 1.5-1.75% for plastics globally.

Among the commodity plastics;

	PP and LLDPE still continued to show some growth all across the globe. In fact, PP grew globally at 6%. Even LLDPE showed a growth of about 5%, possibly at the cost of LDPE.
	LDPE seems to have lost volumes in most of the regions. Even the strong LDPE player like Europe was practically flat in LDPE. North America has taken the highest beating in LDPE. Does it mean that LDPE has no future? The excess capacity of LLDPE has put a tremendous pressure on price of LLDPE. The low prices of LLDPE have exerted severe pressure on price realizations of LDPE and therefore its profitability. The total PE capacity has reached a level of about 66 million tonnes compared to the total consumption of 54 million tonnes. The overall capacity utilization of PE is therefore only about 80%. The surplus capacity will result into the weaker prices. It would therefore be quite difficult to visualize whether a new plant of LDPE with higher capital cost as well as high manufacturing costs compared to LLDPE would be justified atleast in the near future.
	The capacity of PP at 38 million tonnes compared to the consumption of 31 million tonnes in 2001 is in excess almost at the same level as that of PE. The prices of all Polyolefins are therefore likely to remain soft in 2002. Only the turnaround of demand due to improved economy would help improve the profitability.

The US economy seems to show some signs of improvement from the first quarter of 2002. The present economic indicators indeed are positive that can help us to believe that worst is over. 2002 may indeed show some positive growth in economy and hence in the demand of plastics. While it may be difficult to expect the overall growth of 5-6% of Polyolefins in 2002 at least at this early stage, but a growth of at least 4% cannot be ruled out. In other words, 2002 may see additional demand of atleast 2 million tonnes, over and above what would have been created without a major positive change in the global economy. The question is whether the profitability would be adequate for reinvestment in newer capacity development in 2002. Perhaps 2003 would be more conducive.

PVC and PS also had an adverse effect of economic slowdown in 2002. The weaker infrastructural activities indeed had a significant impact on PVC. Infact, the developed economies had lower consumption of PVC and the growth in Asian region could not offset the volume loss of North America & Europe. The rationalization and lower capacity expansion in the recent past has however lesser impact on prices of PVC compared to the other commodity plastics. The recent improvement in PVC prices due to significant increase in EDC/VCM prices could help in improving the profitability of PVC manufacturing. Will that bring about some additional capacities in 2002?
Perhaps the later half of 2002 would provide an answer.

PS also had a weak 2001. The present indicators do not show any significant improvements. It may be possible that PS would have a modest recovery in 2002. On the other hand, PET continued to show good growth in 2001 (although not as healthier as that of previous years). The carbonated beverages market is becoming mature and the adoption in beer market is rather slow. However, the mineral water market is still growing and will ensure the growth of PET in 2002.

What is most heartening is that the worst is over. Plastics are on the path of recovery.
2002 definitely would provide some sparkle to those who believe in plastics business and have not closed shop in the most difficult year of 2001.