Profit margins for making plastics from U.S. natural gas will retreat from record levels this year and won't rebound much this decade as the drop in crude oil cuts global product prices, IHS Inc. said.

Margins from converting U.S. ethane, a gas liquid, into polyethylene, used in plastic bags and bottles, will narrow to about 35 cents a pound in 2015 from more than 50 cents last year, the consulting firm's IHS Chemical division said Wednesday at its World Petrochemical Conference in Galveston. Margins will be closer to 30 cents in 2018 and 2019 before a small gain in 2020, IHS said.

The crude price crash has pushed down the price of naphtha, the raw material used by most plastics producers outside the U.S., by almost half since July. Still, American producers will retain a competitive advantage over Europeans, and the narrower margins will remain significantly above levels prior to 2012, when the shale boom began producing an abundance of low-cost gas, IHS said.

"We do not expect to return to the 2012-'14 range of advantage for U.S. ethane, but we do expect it to rebound as crude again increases faster than ethane prices," IHS said in a slide presentation.

The U.S. and China will lead additions to global supply of ethylene, a key plastics raw material, the consultancy firm said.

Average operating rates at U.S. ethylene plants will dip below 90 percent of production capacity this year and then rise above that benchmark through 2017, after which IHS expects two years of slowly falling rates. A half dozen new U.S. ethylene plants from companies such as Dow Chemical Co. and Exxon Mobil Corp. are scheduled to open starting in 2017 or 2018.

Globally, operating rates should rise steadily to about 89 percent by the end of the decade, IHS said.

U.S. margins from converting propane into propylene, used in bottles and carpets, will narrow by about half through 2016, and then recover somewhat in the last years of the decade, IHS said.

 

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