The announced merger between petrochemical giants Dow Chemical and DuPont will have a significant impact on the low-density polyethylene market and could be just the beginning of large-scale consolidations, an industry consultant said Monday.
"The impact on the polyethylene business will only be with LDPE," Robert Bauman of Polymer Consulting International said. "With the DuPont merger, Dow DuPont will have the broadest and most specialized LDPE product line for the domestic [US] and export markets."
Dow and DuPont announced plans Friday to merge and eventually split into three separate companies, which is expected to take place in 18-24 months following the closing of the merger, subject to regulatory and board approval. Dow and DuPont's plastics business will be part of a new material sciences company. Combined pro forma 2014 revenue for the material sciences company would be approximately $51 billion, DuPont spokeswoman Carole Davis said.
DuPont produces LDPE in the US at its Orange and Victoria, Texas, facilities with an annual capacity of 811 million lb/year, but Bauman noted DuPont does not currently have the same "global footprint" of other major producers. Dow is one of the world's largest polyethylene producers, with a portfolio that includes many grades of LDPE, linear low-density polyethylene and high density polyethylene.
Bauman said most of DuPont's LDPE products are highly specialized -- such as EVA copolymers, Surlyn ionomers and acrylic acid copolymers -- and complement Dow's product lines with little to no overlap.
With the current economic climate in the oil industry and an onslaught of new plastic resin expansions slated to hit North America over the remainder of the decade, Bauman said DowDuPont may not be the last mega-merger of its type. "I believe that some negotiations are actually in progress," he said. "There also could be some consolidation as a result of the shale gas driven oversupply in ethylene/polyethylene capacity."
In North America, ethylene production during the next decade is expected to climb from approximately 31.1 million mt in 2015 to nearly 44.5 million mt in 2024, a 43% increase, according to Platts Analytics. The majority of that ethylene will be converted to polyethylene.
Worldwide polyethylene production is forecast to grow from 82 million mt in 2014 to 116.6 million mt by 2025, according to Platts Analytics. Bauman said the increased polyethylene capacity without a major increase in global demand could be troublesome for producers who invested heavily in new products.
"This could create one of the worst periods of financial performance for the business in its history which could drive consolidation," Bauman said.
