HOUSTON - The markets for polypropylene resins may be tight at the moment, but new production capacity is being built that will increase supplies significantly by the end of this year. The majority of new PP production plants are being built outside of North America where the highest-growth markets are, according to Tom Sennett, product manager for PP resins for Amoco Polymers of Alpharetta, Ga. Sennett spoke March 20 at the Dewitt Petro-chemical Review in Houston.
With the new capacity, Sennett said he expects production utilization to drop from more than 90 percent-the level at which PP plants now are operating-to about 87 percent in 1998. There were wide swings of operating utilization rates during the early 1990s, with the low point occurring in 1992 when worldwide PP production was at 81 percent of capacity, Sennett said.
"Looking ahead, the current wave of new capacity additions are expected to result in another dip in rates, though the forecasted low point in 1998 is not expected to be anywhere near the 81 percent rate experienced in 1992,'' he said.
Robert D. Dennett, an industry analyst with CMAI, a petrochemicals industry consulting firm based in Houston, was slightly more pessimistic. Dennett spoke March 21 at the 1996 World Petrochemical Conference sponsored by CMAI in Houston.
Dennett said he sees operating rates for PP production dropping through 1996 to reach a low point of 82-83 percent in 1997. Further, he said he sees the industry staying at that low level through much of 1998 before demand increases and gives producers more business.
Both Dennett and Sennett expected recent price increases announced for March 1 to be-come effective in the market, but for those increases to be ``impacted'' by the additions to production capacities.
``Prices and cash margins [for PP] are forecast to improve over the next several months,'' Dennett said. ``Polypropylene ex-port volumes have recently strengthened and export prices are above cash costs.
``Late this year, or early 1997, export prices will dip below cash costs; indicating the arrival of a new round of capacity expansions. Cash margins will be good through the third quarter of 1996; then shrinking as the new capacity comes on stream,'' Dennett said.
Sennett expected another price increase would be announced for the second quarter of this year.
Both speakers expect significant growth in demand for PP - at rates of two or three times the growth in the world's economy —- for the next several years.
``Of all the major thermoplastics, polypropylene has been the fastest growing; and is expected to continue to be the leading polymer,'' Dennett said.
While it continues to be used in new applications that are boosting demand in developed countries, Dennett and Sennett said PP is gaining market share and new applications in developing countries - especially in Thailand, Korea and China - that represent the world's fastest-growth areas for this polymer.
``Over 40 percent of the new capacity [that is being added in the next five years] is in the Asia-Pacific region,'' Bennett noted. He further pointed out that production in that region will exceed 200 million pounds by 2000.
``Total world capacity did not exceed 200 million pounds until 1987, 25 years after polypropylene came into existence,'' he added.
Sennett said six to eight new production units will have to be added for PP each year to keep up with growth.
However, he noted that predicting demand could be tricky, and could lead to situations such as the industry will see this year, where supply begins to outstrip demand.