If Nick Vafiadis' predictions are accurate, there are some profound changes ahead for the polyolefins market and its impact on film-based packaging converters. Vafiadis, director of polyethylene, North America, for Houston-based Chemical Market Associates, spoke Oct. 26 at the Flexible Packaging Association's Fall Executive Conference in Chicago. His observations build upon some of the things I brought up in last month's Viewpoint.

First off, "you can't overstate the impact of Hurricanes Katrina and Rita," Vafiadis says. With half the ethylene feedstock supply out of commission, as well as half the LDPE and three-quarters of the LLDPE-resin production shut down, higher prices for these key film-packaging materials will be in place for the next few months. That is, if you can even get the resins you need beyond what your suppliers will allocate.

Over the next year, the US and China will continue as the twin engines of global economic growth, Vafiadis says, but higher energy prices and rising interest rates at home (meant to curb the inflation caused by those higher prices) will trim GDP growth by up to three-quarters of a point. He forecasts US GDP rising only 2.8 percent in 2006.

For the longer term, through say 2009, a number of factors have combined to keep polyolefin costs high. Crude oil should stay above $50 a barrel, US ethylene costs have doubled since 1999 with the rise in oil prices, and new ethylene capacity is growing 10 times faster in the Middle East than here in North America. In fact, 49 percent of poly-ethylene expansion will occur in the Middle East in the next five years, while domestic expansions will be almost non-existent, Vafiadis says. On top of all this, add explosive growth in PE-resin demand in China and Asia.

One of Vafiadis' wildest predictions, however, is already coming to pass—in a tentative way. Would you believe it's now cheaper to import PE from the Middle East than to make and sell it here? The 2:1 trade deficit in flexible packaging has been a problem for years, with cheap imports of monolayer bags from China and India predominating. But now, North America is getting priced out of the market in the raw materials, too. The price benefits of Middle East oil and available production capacity give Middle East suppliers a 30 percent cost advantage over US producers—more than enough to offset the shipping. Some trial imports are already taking place, Vafiadis warns.

While primarily flex-pack converters appear to be in for a rough road ahead, not everyone is safe. Film-based labelmakers and even paperboard converters using resins in one way or another are bound to feel the price pinch. Fortunately, knowledge is power. Find out the best way to use these trends to your advantage.