The global polypropylene market will need to stagger through the next few years before finding its stride again. With demand and prices in freefall since mid-2008, that might be the best the market can hope for.
“What punched polypropylene to the ground was disruption of consumption throughout the supply chain,” said Esteban Sagel, North American polyolefins director for Chemical Market Associates. He spoke at his firm’s World Petrochemical Conference, held March 25-26 in Houston. The current PP slump will keep global PP operating rates between 75 and 80% through 2011. Sagel characterized the rates as “the lowest seen in history”.
New capacity already on the way will further complicate the situation, adding more than 11 billion pounds to global PP capacity in both 2009 and 2010. “Companies [that are adding capacity] already have made commitments with financial institutions,” said Sagel. “They have to start up these plants, and that will move the market into an oversupply situation. Oversupply then will keep prices somewhat under control.” Demand has slipped to such an extreme — down 11 percent, or more than 2 billion pounds, during 2008 in North America alone — that prices for PP and propylene monomer feedstock may go separate ways in the next few months.
Weak PP demand means that producers may not be able to pass on higher propylene costs to their PP customers, Sagel explained. Longer term, however, higher energy prices probably will bring PP prices up as well. These conditions are likely to lead to capacity closings around the world and in North America, where producers already have idled more than 2 billion pounds of PP capacity since early 2008. PP makers “will have to look at their facilities and operations and see which ones aren’t making money,” Sagel said.
CMAI also expects that by 2013, North America and Western Europe will become net importers of PP. In 2008, North America had a net export balance of about 1.9 billion pounds, while Western Europe had a similar balance of 1.7 billion pounds. By 2013, North America will be importing almost 500 million more pounds of PP than it’s shipping out, and Western Europe will have a negative balance of 2.7 billion pounds, according to CMAI. Two Asian firms — PetroChina of Beijing and Reliance Industries of Mumbai — are expected to replace two European ones — Total Petrochemicals of Paris and Ineos Group of Lyndhurst, England — in the ranks of the world’s five largest PP producers by 2013. Sagel cited product redesigns among the many culprits for reduced PP usage. He listed the example of yogurt cups, which have retained their same basic appearance while going from 6 ounces of product to 4, using less PP resin as a result. Yogurt makers have accomplished this by raising the bottom of the container, he said.
But amid all the gloom, Sagel said he did see some reasons for optimism while walking through the ruins of the PP market. Per capita PP consumption in heavily populated India, Indonesia, China and South America is growing, but still will be under North American levels of 33 pounds per person by 2013. As the 4 billion people in these areas increase their PP use, the market should improve, Sagel said. “You can see how the upside potential is much higher than the downside potential in terms of demand,” he added.