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Global polypropylene growth likely, despite cost issues

By: Frank Esposito

March 29, 2013

HOUSTON — As a plastic material, polypropylene has undergone a shift in price structure and now is competing based on its properties.

PP now is a more expensive material than high density polyethylene in most markets, although it remains less ex- ­pensive than polystyrene, market veteran Robin Waters said at the IHS World Petrochemical Conference, held March 20-21 in Houston. Waters joined IHS as North American polyolefins director in late 2012 after spending several years with global PP leader LyondellBasell Industries.

In spite of this higher-cost status, global PP growth rates are expected to increase from less than 4 percent in 2007-12 to just under 5 percent in 2012-17, according to an IHS projection.

And even though demand growth in North America is expected to remain low, Waters said IHS expects the region to add new PP capacity toward the end of the 2012-17 period — although no capacity expansions have been announced to date.

New capacity is expected because natural gas development, although negatively impacting short-term propylene supplies, also is providing additional propane, which can be converted into propylene.

"There's not a burning desire" in North America for more PP, Waters said. "The propane play is driving [new capacity]. To attract capacity, you have to think in integrated terms, not non-integrated."

North America should be able to export more of this projected new PP capacity, lifting its net export balance from less than 640 million pounds in 2012 to almost 1.1 billion pounds by 2017, according to IHS.

The North American PP field also is expected to benefit from propylene monomer being produced through propane dehydrogenation (PDH) or "on-purpose" propylene production.

Several producers have announced plans for PDH projects, most recently Wil­liams Cos., which will use technology provided by Honeywell to build a billion-pound-per-year-capacity PDH unit in Alberta, Canada.

Only one planned PDH site is connected to an existing PP maker, making for what Waters called "an interesting dynamic" of who will build PP capacity in North America.

The Chinese PP field will have to deal with overcapacity in the 2012-17 period, he added. That nation also will see its propylene supplies increase through use of coal-to-olefins technology.

Western Europe's PP market is expected to struggle in 2012-17 because of lower domestic demand, increased imports and decreased exports, Waters said. Between 4 and 5 percent of the region's PP capacity is expected to be shut down by 2017. Western Europe's PP trade balance is expected to swing from net exports of more than 820 million pounds to net imports of almost 2.6 billion pounds between 2012 and 2017.

During that time, global PP operating rates are expected to decline moderately to the low 80s, with North America's being the highest in the mid-80s.

North American PP prices are expected to continue to show volatility in that forecast period. They'll moderate a bit, Waters said, but volatility won't go away until new capacity creates a larger export market.

IHS expects regional PP prices around the world to align by 2020. The price ratio of PP to HDPE also will come back more in alignment, but new PE capacity will prevent PP from returning to its low-cost position, Waters said.