The global polypropylene market is learning that growing up is hard to do.
``Polypropylene is in a more competitive market now,'' said Bob Dennett, a market analyst with Houston's Chemical Market Associates Inc. consulting firm. ``There are more producers with similar characteristics.
Dennett - speaking at his firm's World Petrochemical Conference, March 22-23 in Houston - added that in 2006, PP ``is a bigger business than ever before.''
``It's harder [for PP] to grow at two times GDP,'' he said. ``Now it may be difficult to do even 1.5 times GDP.''
PP accounted for 23 percent of global plastics demand in 2005, but PP makers now are more cautious about building new capacity. The higher cost of propylene monomer is playing a role in this decision, Dennett said.
Propylene supplies have grown tight as demand for the material has outpaced that of gasoline. Historically, much propylene supply has come as a byproduct of gasoline production, but firms now are looking into on-purpose propylene production. By 2010, Dennett estimated that 13 percent of global propylene supply would come from on-purpose works.
Potential oversupplies of PET also could affect the PP market in the near future by creating competition for packaging and blow molding applications, Dennett said. But at the same time, a number of machinery makers and processors are looking to replace several existing PET uses.
Dennett pegged global PP growth rates at 5.5 percent between 2006 and 2010. In North America, growth will be slightly lower at 4.4 percent. Global PP operating rates were around 92 percent in 2005, but are expected to drop to less than 85 percent by 2010 with the onset of more than 41 billion pounds of new capacity.
Much of this new capacity will be in the Middle East, where almost 14 billion pounds will be added in that time frame. About 70 percent of that amount will come onstream in Saudi Arabia.
But Dennett does not expect much of this Saudi PP to wash up on North American shores. He estimates that integrated PP makers in the Middle East will be on par with North American costs, but nonintegrated producers from the region will be paying a 15 percent premium to market their material in North America.
On the pricing front, Dennett said he expects North American PP prices to remain relatively high through 2006 before a period of decline and moderation that could extend through 2010.
North America is set to add only about 2 billion pounds of new PP capacity in the 2006-10 period - mostly through projects in Mexico and debottlenecking of existing plants. CMAI's statistical projections show North America as a net importer of PP by 2010, but Dennett is not convinced that will be the case.
``I don't think North America will be a net importer because we have propylene in our refining system,'' he said. ``I think someone will come along and build a plant and grow the business.''