North American packaging raw material supply under pressure as increasing preference for natural-gas derived ethane feedstock drives up propylene prices, pushing many PP producers out of market

Alison Gallant

LOS ANGELES , July 1, 2011 (Industry Intelligence) – The North American petrochemical industry is undergoing a sea change as discoveries of massive natural gas reserves will increase the volume of ethylene produced at the expense of propylene and other major compounds used in the manufacturing of raw materials for the packaging industry, according to Henkel Adhesives Technologies' Anne Sasso in a white paper, published in Packaging World June 30.

North American cracker operators are turning away from higher-priced feedstocks such as crude-derived naphtha and toward lighter feedstocks such as natural gas-derived ethane gas. The result is tightening supply and higher prices for propylene. Propylene supply has exceeded demand in recent years and as a consequence prices have increased four-fold since the recession's nadir and reached a record high in May.

About 58% of propylene output is used to make polypropylene, which in turn is used in packaging films, resins and bottles. When propylene supply tightens, buyers from more niche, higher-margin markets than PP bid up prices, pushing PP manufacturers out of the market. This pattern has particularly impacted the supply of ethylene vinyl acetate and driven prices for EVA ever higher.

Shoe-grade EVA is less expensive to manufacture than adhesive-grade EVA, or EVA used for solar paneling. Historically, shoe producers win when competing with adhesives manufacturers for EVA supply. Now even more so. As the economy started to bounce back, demand for shoes increased and EVA suppliers concentrated even more on shoe-grade EVA at the expensive of adhesives. The increasing demand in the solar panel industry is also worsening the situation for adhesive producers. Because solar paneling is a much higher margin industry, EVA producers focus more on producing solar panel-grade EVA than adhesive-grade EVA.

The growing preference for ethane as a feedstock is also threatening the supply of water-white hydrocarbon tackifiers for end-of-line packaging applications. For instance, adhesives used for disposable diapers are seeing significant demand as China's growing middle-class shifts toward the use of disposable diapers, and the West's aging population is buying more disposable diapers. Limited supply of these tackifiers and increasing demand is only driving prices higher.

The report warned that the tightening supply of propylene and other compounds required to make propylene-derived packaging materials, and the threat to the supply of adhesives and tackifiers--known as hot melt raw materials--is particularly grave.

The primary source of this white paper, written by Anne Sasso of Henkel Adhesives Technology, published in Packaging World, Chicago, Illinois, June 30, 2011.

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