AKRON, OHIO—The introduction of more than a billion pounds of new capacity has pushed polypropylene prices down over the summer, with that softening making it difficult for manufacturers to push through 3 cent price increases announced between May and July.
``Buyers have had the last six months to get prices down,'' said Kyle Lorton, senior product marketing manager for Dow Plastics' polypropylene division. ``They know there's additional capacity out there that needs to be placed.''
Plastics News is showing a 4 cent reduction in PP prices this week to reflect this trend.
The summer's major capacity expansion took place in Baytown, Texas, where Exxon Chemical Co. brought on between 500 million and 600 million pounds of annual PP production. Solvay Polymers Inc. of Houston, Epsilon Products Co. of Marcus Hook, Pa., and Phillips Sumika Polypropylene Co. of Houston each added PP capacity late last year, as well.
``Exxon's new capacity is having some damaging effects right now,'' Lorton said in a June 21 telephone interview from his Midland, Mich., office. ``It's causing some havoc in the marketplace.''
Dow plans to announce the location of its first North American PP plant later this year. It expects the plant to have capacity for more than 500 million pounds. Sites have been narrowed down to Plaquemine, La., or Freeport, Texas.
Exxon declined to comment on pricing-related matters.
Solvay PP marketing manager James Killough agreed the additional industry capacity is a major factor in the PP market. Killough's own company added 200 million pounds of capacity when it opened a new gas-phase reactor in Deer Park, Texas, in October.
Recent price softening is likely to extend into the winter months, according to Killough.
``Some of what we're seeing is seasonal, but there's a lot of capacity out there,'' Killough said. ``Buyers can shop around. They know companies have the capacity and what the demand is.''
Dow declined to follow industry leader Montell Polyolefins of Wilmington, Del., on the May-to-June price increases, which followed largely unsuccessful March increases. Houston-based Exxon also sought an increase, while another major player, Amoco Chemical Co. of Alpharetta, Ga., did not.
An official at a Cleveland PP compounder said he had seen little, if any, of the 6 cents PP manufacturers had sought this year, and he already had started to see some price erosion. A PP buyer in Union, S.C., said the uncertainty of the increases led him to believe suppliers ``weren't extremely confident'' about the market.
The additional capacity is causing ``a little bit of a shudder,'' among producers, said Rob Harvan, chemical planning director for Houston consultants Bonner & Moore.
``Processors just have so much resin on their hands,'' Harvan said June 23. ``It's been enough of an increase to change leverage from the sellers back to the buyers.''
Harvan said recent PP capacity increases are 20-40 percent larger than similar expansions were five years ago, causing the resin situation to look more extreme.
Absorbing the new capacity may be a two- or three-year process, Killough said.
``For the capacity to get absorbed and to get back up to high utilization rates, we need the economy to stay good and plastics markets to stay decent and monomers to remain plentiful,'' Killough said. ``That's too many things that need to fall in line.''
Expansions announced by Fina Oil and Chemical Co. and Amoco Polymers are also in the mix. Fina will bring 550 million more pounds on line in LaPorte, Texas, by late 1998, while Amoco is expected to boost its capacity near Alvin, Texas, by 500 million pounds by early 1999.
Some industry sources said the effect of a recent explosion and fire which knocked out one billion pounds of propylene production at Shell Chemical Co.'s Deer Park facility may not have the stabilizing effect on PP prices that had been predicted.
Industry officials said most of Shell's propylene produced in Deer Park went into chemical market uses instead of into PP.