American Chemistry Council 2012 Year in Review

more

americanchemistry.com 700SecondSt.,NE|Washington,DC20002|(202)249.7000

U.S. PLASTIC RESINS INDUSTRY EXPANDS IN 2012 In 2012, the U.S. plastic resins industry expanded for the third consecutive year, continuing its rebound in the wake of 2009s low. According to the American Chemistry Council (ACC) Plastics Industry Producers Statistics (PIPS) Group, resin production increased 2.7 percent to 105.9 billion pounds in 2012. Total sales rose 2.1 percent in 2012, finishing the year just shy of 107 billion pounds. The Global Economy in 2012 After three years of recovery from the Great Recession, the global economy stumbled in 2012. Dynamic growth was fleeting as the Eurozones crisis turned into an outright recession, a slowdown in China became particularly pronounced, and global manufacturing hit a soft patch. Growth in the global economy expanded only 2.1 percent in 2012 following 2.8 percent growth in 2011 and a 4.1 percent rebound in 2010. World trade also grew but at a much slower pace than the year before, expanding 2.6 percent in 2012 following 5.8 percent growth in 2011. The economic recovery in North America continued in 2012 but growth was slow and weak. During 2012, U.S. GDP rose 2.2 percent, up from the 1.8 percent pace in 2011. Business investment and exports had been drivers boosting manufacturing output, but uncertainty over politics, the Fiscal Cliff, and tax reform were a weight on business confidence. Moreover, the recession in Europe and weakness in Asia combined to hinder U.S. exports. The strong manufacturing recovery lost momentum, unemployment persisted, and consumer incomes stagnated, all indicating a speed bump in the recovery. However, there was some good news as consumer deleveraging resulted in more normal household debt burdens and signs from the housing market finally began to point toward a sustainable recovery. In Canada, GDP grew 1.8 percent in 2012 following a 2.6 percent increase in 2011. Together, North American (Canada and U.S.) GDP increased to a 2.2 percent pace in 2012. Trends in Customer Industries Domestic demand for plastics was stable through 2012 but, did not gain momentum. Strength in trade somewhat offset the anemic domestic demand but, growth in imports surpassed growth in exports as export demand was inhibited by weakness in the Eurozone and the slowdown in China. The recovery in end-use markets was uneven with stronger growth in automotive, aerospace, and construction materials being offset by lackluster performance in other manufacturing industries. Analysis of thermoplastics industry activity indicates that customers were working to balance their inventories through much of 2012. Downstream customers of thermoplastics followed a pattern of several months of restocking and then several months drawing down their inventories, restocking again and then the last four months of 2012 were characterized entirely by inventory draw downs.

2012 Year In Review - Resins March 2013 Page 2


The year as a whole was technically one of downstream inventories being drawn down as thermoplastics consumption (domestic sales plus imports) was less than underlying demand, but overall, inventories were roughly balanced against sales. Although the demand for plastics is ultimately tied to overall economic growth, plastic resins are used in a variety of end-use markets that featured different dynamics at play: Packaging is the largest market for plastic resins and historically, packaging resin use has been correlated with real retail sales, i.e., retail sales adjusted for inflation. According to data from the Bureau of the Census and Bureau of Labor Statistics, real retail sales continued to grow but at a moderated pace of 2.6 percent in 2012, following stronger growth in 2011 (up 5.0 percent) and in 2010 (up 4.1 percent). Soft sales growth in 2012 largely reflected the slow recovery in the job market and consumer incomes and continued low confidence. According to Statistics Canada, the Canadian retail sector increased 2.5 percent in 2012 after a 4.1 percent gain in 2011. As a result, output of the North American retail sector experienced a 2.6 percent gain in 2012. Packaging industry output for the region contracted after having interrupted a downward trend in 2012. Both imports and exports of plastic products and other finished goods incorporating plastics resins continued to expand after sharp recoveries in 2010, but strong import growth dampened demand for domestic production of plastic products and other manufacturers. Building and construction represents an important market for plastic resins. After four years of decline and hitting bottom in 2009, housing starts increased modestly in the United States in 2010 and 2011, and then accelerated in 2012. Though starts are still off 62 percent from the 2005 peak of 2.07 million units, a recovery was clearly in process. Housing starts in the United States increased from 612,000 in 2011 to 782,000 units in 2012. Nonresidential construction picked up as well. Canadas housing starts improved from 194,000 units in 2011 to 215,000 units in 2012. The Canadian construction industry grew in 2012 reflecting, for the most part, growth in residential construction as non-residential construction declined. Overall, North American construction activity grew by 5.2 percent in 2012. Transportation is another significant market for plastic resins. Light vehicle sales continued to strengthen in the U.S., rising from 12.7 million units in 2011 to 14.4 million units in 2012. Canadian sales also increased (from 1.62 million units in 2011 to 1.72 million units in 2012). According to the U.S. Federal Reserve Board, production of motor vehicles and parts in the U.S. increased 17.5 percent in 2012. This follows two years of strong growth (production increased 9.0 percent in 2011 and increased 32.7 percent in 2010). Production of motor vehicles and parts in Canada accelerated in 2012 after a small decline the year before. Overall, North American production of motor vehicles and parts increased 17.4 percent in 2012. Another important plastics market is electrical and electronics, much of which is centered in appliances. Together, in the U.S. and in Canada, the appliance industrys output volume continued to contract and declined 0.5 percent in 2012. Though the downward trend in appliance production persisted, it began to moderate as the recovery in the housing market finally took hold. Some appliance production shifted to low-cost manufacturing countries. However, much of the production that has left the U.S. has gone to Mexico and resin suppliers in the U.S. and Canada serves this nearby market. Production of both electronic products and other electrical equipment



increased in 2012, extending the trend of positive growth to three years. In 2012, production of computers and electronic products in North America rose 4.5 percent while production of other electrical equipment rose 5.7 percent. Furniture and furnishings represent a key market for plastics. The North American furniture industry, tied to the health of the housing market, has regained momentum. In Canada, output of the furniture industry was up 2.8 percent in 2012 after having posted a year-over-year decline in 2011. There was growth in the U.S. where production in the furniture industry increased 4.7 percent in 2012 and overall, the North American furniture industry expanded 4.5 percent in 2012. The growth in North America follows a 2.3 percent rise in 2011 and a 0.7 percent decline in 2010. North American production of carpeting and other textile furnishings grew modestly in 2012. The trend in these markets is likely to continue to accelerate with the improvements in the housing market. Industrial machinery represents another important market, one aided by increased business investment needed to enhance competitiveness, and to expand capacity, both in North America and in rapidly growing emerging markets. Following two years of robust growth, North American production of industrial machinery slipped in 2012. On a year-over-year basis, output of industrial machinery decreased 3.2 percent in 2012 after having increased 13.5 percent in 2011. Growth in this market was stifled as firms in North America faced uncertainty affecting their capital investment decisions. The previous discussion examines the primary end-use markets that ultimately drive demand. The plastics products industry (NAICS 3261) is the key immediate customer industry for plastic resins. In turn, this industry supplies these important end-use markets. During 2012, North American plastics products production rose 4.2 percent reflecting improvement in demand among the end-use markets. Following a contraction in 2009, North American trade in plastics products recovered and continued to rise, increasing over the past three years. North American exports of plastics products grew 3.5 percent and imports grew 9.3 percent in 2012. As growth in imports of plastic products continued to surpass that of exports, the trade balance with the rest of the world grew from a $5.3 billion deficit in 2011 to a $6.6 billion deficit in 2012. The shift in competitiveness toward North American petrochemicals and resins continues to accelerate. Development of natural gas and natural gas liquids from shale formations is driving new petrochemical and resin capacity investment in North America. As of early 2013, nearly 100 projects have been announced with investments totaling more than $70 billion through 2020. This is a full reversal of industry conditions compared to a decade ago when natural gas prices were higher and the U.S. was near the top of the global cost curve. Recognizing the new cost advantage in North America, companies around the globe are investing in North American petrochemical and resins capacity. Shale gas offers advantages to other manufacturers as well, including plastic and rubber products. Indeed, resin manufacturing is at the forefront of a manufacturing renaissance buoyed in part by shale gas.



Analysis of Historical Trends for Major Resins North American polyethylene (PE) sales rose again in 2012, marking a fourth consecutive year of growth. Total sales of PE ended 2012 at 37.7 billion pounds, up 0.5 percent from 2011. Domestic sales helped drive this increase in 2012, up 2.3% from 2011 to end the year at 30.4 billion pounds. In 2012, PE exports fell by 6.4 percent, with sales of 7.3 billion pounds. Low density polyethylene (LDPE) sales totaled 6.8 billion pounds in 2012, up 0.5 percent from 2011. This sales growth was driven by export sales of 1.4 billion pounds, an increase of 8.5 percent from 2011. Domestic sales were down in 2012, finishing the year 1.5 percent lower with sales falling to 5.4 billion pounds. Market segments with large gains in 2012 were construction and agricultural film (up 54.6 percent) and film for trash and can liners (up 23.6 percent). However, stretch films saw a large reduction (down 46.9 percent). Production of LDPE was up 2.7 percent from 2011. Linear low density polyethylene (LLDPE) sales were off 1.7 percent from 2011, ending 2012 at 13.3 billion pounds. Domestic sales reached 10.5 billion pounds, an increase of 3.6 percent from 2011. Export sales continued a downward trend, falling another 17.1 percent in 2012. Domestic market segments in blow molding and injection molding did see an increase in 2012 (up 14.5 percent and 12.9 percent, respectively). Production of LLDPE was essentially flat at 13.4 billion pounds in 2012, up just 0.1 percent over 2011. High density polyethylene (HDPE) finished the year with total sales rising to 17.6 billion pounds, an increase of 2.2 percent from 2011. Domestic sales helped drive this growth (up 2.7 percent in 2012), with exports falling 0.5 percent. Several domestic market segments saw solid gains in 2012, including gas distribution pipe (up 30.0 percent), automotive fuel tanks (up 13.2 percent), packaging film (up 8.7 percent), geomembrane sheets (up 9.8 percent) and caps and closures (up 6.9 percent). Production of HDPE climbed 3.6 percent from 2011. Total polypropylene (PP) NAFTA sales finished 2012 at 16.5 billion pounds, an increase of 0.6 percent from 2011. The rise was driven by improved domestic sales (up 1.3 percent to 15.7 billion pounds), countered by a continued falloff in exports, down 11.2 percent from 2011. A bright spot for PP sales in 2012 was again the cups and containers market (up 23.4 percent from 2011) that, along with Crates & Totes, drove the overall growth in rigid packaging by 6.2 percent. The large market for various PP textile applications also grew slightly (up 1.6 percent). Sales fell in some PP market segments, including consumer products (down 8.0 percent), appliances (down 5.3 percent), and blow molding (down 16.1 percent). Of the 15.7 billion pounds of sales within the NAFTA region, 84 percent was consumed in the United States, 12 percent in Mexico and 4 percent in Canada. 2012 production of PP in the NAFTA region inched down, 0.6 percent versus 2011, to 16.3 billion pounds. Polystyrene (PS) sales to the NAFTA region were 4.5 billion pounds in 2012, down 3.5 percent from 2011. Sales were down in most market segments, including the largest PS market for food



packaging and food service (down 1.0 percent), as well as electrical/electronic (down 5.4 percent) and building and construction (down 7.4 percent). PS production in the NAFTA region slipped to 4.6 billion pounds, a decrease of 1.8 percent from 2011. Volumes of expandable polystyrene (EPS) were up in 2012, with domestic sales gaining 5.7 percent and exports gaining 9.6 percent over 2011. Production rose to 879 million pounds in 2012, an increase of 7.9 percent. Polyvinyl chloride (PVC) production and sales volumes increased for the third straight year in 2012. Domestic production was up 6.1 percent to 15.3 billion pounds. Total sales and captive use, also 15.3 billion pounds in 2012, saw an overall increase of 5.7 percent. Domestic PVC demand grew 716 million pounds, an 8.1 percent jump from the previous year, and PVC export volumes posted yet another record year, up 1.9 percent over 2011. The resurging housing market in 2012 drove increased PVC sales to related markets including windows and doors (up 19.3 percent), rigid pipe and tubing (up 12.2 percent), siding and siding accessories (up 9.0 percent) and fencing and decking (up 7.4 percent). PVC sold to film packaging applications was up 6.2 percent. The figures are based on primary data for selected major plastics materials as compiled by Veris Consulting, Inc., for ACCs Plastics Industry Producers Statistics Group.

# # #

http://www.americanchemistry.com The American Chemistry Council (ACC) represents the leading companies engaged in the business of chemistry. ACC members apply the science of chemistry to make innovative products and services that make people's lives better, healthier and safer. ACC is committed to improved environmental, health and safety performance through Responsible Care, common sense advocacy designed to address major public policy issues, and health and environmental research and product testing. The business of chemistry is a $720 billion enterprise and a key element of the nation's economy. It is one of the nations largest exporters, accounting for ten cents out of every dollar in U.S. exports. Chemistry companies are among the largest investors in research and development. Safety and security have always been primary concerns of ACC members, and they have intensified their efforts, working closely with government agencies to improve security and to defend against any threat to the nations critical infrastructure.

Please note the following: The ACC Plastics Industry Producers Statistics Group makes more detailed reports (including monthly end-use sales figures for major resins) available to subscribers of its various services. For more information about available subscription options and pricing, please call ACC at 202-249-7000 or visit www.americanchemistry.com/resinstatistics.

Documents

American Chemistry Council 2012 Year in Review