Business is pointing upward again for the plastics industry, Plasteurope.com proclaimed happily at the beginning of 2010, commenting on the results of a reader survey carried out by its sister publication, Kunststoff Information (KI, Bad Homburg / Germany; www.kiweb.de). At the time, producers, converters and machinery manufacturers in German-speaking Europe said they thought the economic buoyancy was likely to be sustained through the second half. Indeed, as 2010 draws to a close, it does appear that at least this part of Europe quickly laced up its seven-mile boots and strode confidently out recession. In large parts of the plastics industry, business has now rebounded to the levels of 2007 – an incredible feat, as that year saw the peak of a three-year boom. At the beginning of 2010, few would have dreamed that the good times would return so soon.

Nevertheless, the painful memories of the 2008 crash are still fresh, and many players are still recession-scarred, which is one reason why caution has tempered any euphoria. Especially significant is the fact that German-speaking Europe clearly has undergone a remarkable recovery, unmatched elsewhere on the continent. Important economies such as Italy, Spain and the UK are still suffering. But although the going is still rough, the plastics industries of these countries are starting to see light at the end of the tunnel. With both jealousy and admiration, they are monitoring the progress made by Germany and France, the EU’s most robust economies at present.

Even more striking from today’s viewpoint is that the automotive industry – one of the hardest hit by the economic downturn, is driving the boom. Dogged until recently by short-time working, doubts about the national scrappage schemes and fears of a shake-out, OEMs now are reporting full order books and plan to keep production plants humming without a break through the holidays. Suppliers of plastics to automotive OEMs are clearly profiting from the revival of this important customer sector; however, it is evident that nothing is as it used to be. The crisis altered the industry landscape considerably and the goalposts have been moved.

The most important events of 2010 at a glance ...

To start with, Asia-Pacific – and especially China and India – has emerged as the new global economic centre of gravity. Global manufacturers of premium vehicles as well as plastics machinery manufacturers are over the moon about the influx of orders from India and China. The increasing importance of these countries was reflected in attendance figures for this year’s “K” exhibition in Düsseldorf / Germany at the end of October. The fair was an overall success, with the dip in visitor numbers mostly linked to a decline in European attendees. By contrast, the Indian delegation to this year’s “K” was visibly larger – see Plasteurope.com of 04.11.2010.

Many European plastics converters are concerned about the insatiable appetite for polymer in these emerging economies, which has led to facing unexpected supply delays at home and a surge in prices. They fear also that low-cost competitors from other regions will encroach on their home territory and depress prices for their own products. While price movements are indeed likely to remain volatile, European converters can feel more relaxed about the Asian “threat,” at least for now. It seems rather unlikely that finished plastic products made in Asia will descend on Europe like locusts. Players in that region already have their hands full trying to meet rapidly rising demand, so that exporting to Europe would not seem worth their while. What’s more, European converters in technical niche applications are even reaping the benefits of strong demand in the Far East.

In the global supply chain, polymers, like metals and minerals, are also beginning to experience tightness, and here, too, Chinese demand is taking its toll. The volatility of polymer prices increased noticeably in 2010, with prices paid by converters for their raw material moving in only one direction – up. However, the plastics processing industry has proven more than once that it can take any hurdles thrown in its path, as Reinhard Proske, the former president of the German plastics processing industry association Gesamtverband Kunststoffverarbeitende Industrie (GKV, Bad Homburg / Germany; www.gkv.de) put it at the association’s annual press conference in February 2010 – see Plasteurope.com of 19.02.2010.

Many European buyers of plastics discovered in 2010 that polymer producers have similar resilience. In the first half year, converters were stunned by the rise in prices for standard thermoplastics into realms not yet seen. At the end of the first half, PP prices, for example, were 65% higher than a year earlier. After beginning a steady climb in spring, engineering thermoplastics prices soared to new heights, and the momentum had still not slowed as 2010 wound down. The upward thrust for standard thermoplastics took a short breather in late summer and autumn, although prices began pointing up more sharply in November. There is much speculation that January 2011 will see additional increases.

In December, as indicated by PIE’s Plastixx indices, European thermoplastics prices had already exceeded the boom levels achieved in mid-2008. Polymer buyers have had a hard time coming to terms with this reality, especially as European demand is nowhere near where it stood during the last boom year before the recession. It is thus obvious that the price surge cannot be rooted in European demand alone.

During the crisis, polymer producers idled numerous plants, some only temporarily. Some facilities were shut down permanently in the course of 2009 as producers feared the older lines would not be able to compete in the volatile global marketplace. Many were also happy to seize the opportunity to make what they felt were long overdue adjustments at a time of relatively little resistance. Producers have profited doubly from the market consolidation. As the recession waned, European demand rose to unexpectedly high levels, while at the same time the long-feared deluge of polymer from the new plants in the Middle East failed to materialise. What many had envisaged as a tsunami turned out to be only a small trickle as plants faced construction delays or their output was quickly gobbled up by China.

Going forward, will this mean business as usual? Not entirely. After all, these developments were accompanied by an as yet unprecedented spate of declarations of force majeure (FM) for feedstocks, thermoplastics and many other plastics-related products in Europe. The numbers speak for themselves. PIE’s database for 2007 includes 12 FM declarations for thermoplastics and petrochemical feedstocks in Europe. In both 2008 and 2009, the number of FMs reported by Plasteurope.com in Europe stood at 14 per year. By mid-December 2010, the number of FMs announced for thermoplastics and petrochemical feedstocks in Europe doubled, to 32. Thus it is little surprise that the European Plastics Converters Association (EuPC, Brussels / Belgium; www.plasticsconverters.eu) in October called on its members to sue their plastics suppliers over increased calls for FM – see Plasteurope.com of 22.10.2010.

The rational explanation for the surge of FMs is that it is a delayed outgrowth of the crisis. The entire petrochemical production chain is interlinked, so that market conditions for unrelated end-markets can significantly influence polymer notations. At integrated sites, for example, the by-products or waste of one line can be used as feedstocks for another, whereas intermediate products can be recombined for use in a wide variety of end products. Some routes to production of caprolactam, for example, produce ammonium sulphate – a feedstock for fertiliser – as a by-product. At the same time, PA 6 can be processed not only into plastics but also fibres.

The most important events of 2010 at a glance ...

Petrochemical plants that had been idled or had output reduced during the crisis were restarted at different times. With demand for certain products varying significantly, this greatly damaged the system’s fragile stability. In the case of propylene, a by-product in the cracking of naphtha to ethylene, this imbalance resulted in severe shortages in H1 2010 and for the first time European prices for the by-product exceeded those of the main product. Propylene is not just an essential feedstock for PP, for which demand tends to run in cycles similar to those of PE, but also plays an important role in polyols, used to produce polyurethanes. Propylene also is used in numerous antifreeze agents, which were in high demand during the harsh winter of 2009/2010.

In the course of H2 2010, the production imbalances gradually abated, and the market order was slowly restored. At the same time, the new production plants in the Middle East reached full run, and several of the huge lines in China that had been delayed were also started up. As a result, supply lengthened and prices eased somewhat, although October’s strikes in the French refinery and logistics sector impacted polymer supply both directly and indirectly. By this time, Chinese demand was pointing up again, boycotts were impeding imports from Iran and, in the face of the Irish debt crisis, the euro once again lost value – as it had when Greece’s troubles were announced in the spring. Consequently, the dollar-based oil and feedstock chain became increasingly expensive for European plastics converters. The direct outcome was a further rise of the already high plastics prices in November and December and expectations of more upward movement in 2011.

European plastics producers were able to make the most of this trend in the first six months of 2010, driving their margins for some product segments to new heights. The extent of this padding was reflected in the companies’ interim results for the first half, which all showed record growth rates. But that was not the only activity. In April, polyolefins giant LyondellBasell (Rotterdam / The Netherlands; www.lyondellbasell.com) exited Chapter 11 bankruptcy proceedings – see Plasteurope.com of 04.05.2010 – and following a period of financial restructuring in 2009, the troubles at Ineos (Lyndhurst / UK; www.ineos.com) also eased.

Early this year, Dow Chemical (Midland, Michigan / USA; www.dow.com) completed the planned divestment of its carved-out styrene and polycarbonate businesses. The majority of the new company, Styron, was acquired by private equity investor Bain Capital Partners in March (see Plasteurope.com of 21.06.2010). The first-half financial reports of both BASF (Ludwigshafen / Germany; www.basf.com) and Bayer MaterialScience (Leverkusen / Germany; www.bayerbms.com) proved encouraging for shareholders and capital markets. In H2, BASF broke the ice on its plans to divest its styrene business and at the end of November announced that this would be merged with Ineos’ styrene activities into a new company called Styrolution (see Plasteurope.com of 30.11.2010).

Another key development of 2010 was that regions such as Latin America and Asia, that had previously not been very active outside their own markets, followed the trend set by the Middle East and began to play a more important role. Brazilian petrochemicals giant Braskem (São Paulo; www.braskem.com) not only consolidated its own country’s polyolefins market, but also acquired the North American PP activities of Sunoco – see Plasteurope.com of 02.02.2010. The Brazilian player also successfully commissioned a large-scale production line that uses sugarcane as a feedstock for ethylene and polyethylene.

The most important events of 2010 at a glance ...

This was also the year in which the North American PET market became truly international. Mexico’s Alfa (San Pedro Garza García; www.alfa.com.mx) acquired the PET plants of Eastman Chemical (Kingsport, Tennessee / USA; www.eastman.com) – see Plasteurope.com of 26.10.2010 – and Thailand’s Indorama (Bangkok; www.indoramapolymers.com) took over the facilities belonging to Invista (Wichita, Kansas / USA; www.invista.com) in the US and Mexico – see Plasteurope.com of 16.11.2010. Well on the way to becoming the world’s leading PET producer, the Thai giant also acquired a plant in Foshan / China this year and announced at the beginning of December that it would take over SK Chemicals’ (Seoul / Korea; www.skchemicals.com) plants in Poland and Indonesia (see Plasteurope.com of 13.12.2010). The line operated by Artenius UK in Wilton had already been acquired by KP Chemical (Ulsan / Korea; www.kpchem.co.kr), a subsidiary of SK Chemicals’ competitor Lotte Group (see Plasteurope.com of 28.01.2010).

Artenius was in the news this year for other reasons, too. After a stunning rise in the global PET market in the second half of the millennium’s first decade, its parent company La Seda de Barcelona (Barcelona / Spain; www.laseda.es) spent most of 2010 on the edge of the abyss, even if capacity utilisation and margins improved considerably. The long struggling production line at San Roque, originally built and operated by Eastman, finally found a new owner in Spanish PTA producer Cepsa Química (Madrid; www.cepsa.com) in autumn (see Plasteurope.com of 23.11.2010). At the same time, La Seda staggered through numerous management changes, accompanied by a lot of mud-slinging.

Towards the end of the year, China began to make itself noticed, as its companies expanded their acquisition drive into new markets in the traditional industrialised nations. They are likely to begin stirring up polymer markets over the next few years, probably starting with engineering thermoplastics.

Bayer MaterialScience, meanwhile, is moving in the opposite direction. Following its market, the leading European polycarbonate producer has announced a comprehensive expansion of its production activities in Shanghai and will move the headquarters of its PC business to the Chinese boomtown – see Plasteurope.com of 10.12.2010. The symbolism could not be more powerful. In any case, Günter Hilken, the head of the business unit, can hardly be expected to remain president of PlasticsEurope Deutschland.

As plastics producers were swept into the maelstrom of globalisation, the processing sector also faced significant challenges. Several once important manufacturers of technical components already had been forced to close shop in 2009. While most of the survivors have begun to reap the benefits of this consolidation, the crisis still rears its head in an occasional insolvency filing. For some companies, the recovery simply began too late and could not make up for previous losses. In contrast to 2009, however, most of the affected companies are likely to continue operating, thanks to refinancing schemes.

The OEM suppliers’ year was largely driven by the automotive and E&E sectors, whose rapidly increasing demand resulted in extreme material shortages. The situation was especially acute for polyamides, led by PA 6.6. Substituting other polyamide types was not enough to cope with this level of demand, and some companies had to bend the specification requirements. It is to be expected that in future specification of particular material for certain OEM applications will be limited to security concerns. As a result, it will become increasingly important for suppliers to develop alternative materials, especially as the production of engineering plastics increasingly is moving to Asia.

The most important events of 2010 at a glance ...

Even though plastics packaging manufacturers saw their capacity utilisation levels and sales increase in the course of the year, they are staggering under the burden of soaring standard thermoplastics prices. Passing on these costs can prove tricky, especially in highly competitive mass markets. Here, too, a few companies have started to fall by the wayside, no longer able to compete.

Plastics buyers have long already had to and will continue to be forced to come to grips with the increasing volatility of feedstock prices. Not all have found the right formula, much less drawn up a strategy for survival. On top of this, when planning their purchases in future they will have to pay even closer attention to developments in China and Asia, which increasingly serve as a gauge for influencing European prices. Needless to say, as customers of plastics manufacturers, European converters are beginning to take a back seat to the bigger players in Asia, whose huge requirements make even their larger volumes seem like peanuts.

Suppliers of plastics to the building sector already know a thing or two about being under such pressure. While converters supplying other branches were picking up new orders in the first half, pipe manufacturers were still scrimmaging for the bread crusts cast their way by the economic stimulus programmes. Profile manufacturers continued to set their sights on the rather moderate developments in eastern Europe, markets they once regarded with a lot of hope. In the meantime, at least the German-speaking European countries have seen demand from the building sector improve. The picture livened up somewhat in the second half, even if the momentum was negligible compared with the bounce-back that the technical components segment showed.

In an upward spiral leading up to “K 2007”, plastics machinery manufacturers had been bracing for a downturn, but the crisis that ensued seemed more like a highway to hell. But, of course, the steeper the fall, the stronger the rebound. Just in time for this year’s “K” mega show, Euromap (Frankfurt / Germany; www.euromap.org), the European association of plastics and rubber machinery manufacturers, announced that it expects production value among its member states to rise by 10-15% in 2010 (see Plasteurope.com of 02.11.2010).

In any case, 2010 was certainly not a boring year, neither for machinery manufacturers nor for the industry as a whole. Having learned some lessons from the recent crisis, however, in the current upward momentum, producers should check to see if their parachutes are in order. High flying can be exhilarating and why not make the most of it? But who knows when the next crisis will hit and how steep the fall will be.

The most important events of 2010 at a glance ...