Polypropylene prices have been on a steady uphill climb for several years, but they should be heading down this year and into 2009 as massive amounts of new capacity emerge worldwide.
Such is the expectation of Esteban Sagel, North American polyolefins director with Chemical Market Associates Inc. in Houston.
"Polypropylene prices have never been so high," Sagel said at CMAI's World Petrochemical Conference, March 26-27 in Houston. "It's no longer a cheap polymer. Polypropylene is close to or above parity with other polymers."
Globally, more than 5 billion pounds of new PP capacity are set to come on line in the first quarter of this year, with a slightly larger amount set to arrive in the fourth quarter. The third quarter of 2010 will be another big quarter, with more than 4 billion pounds of new PP set to come on globally. Global PP operating rates are expected to be under 90 percent from 2007-11 as a result of this new capacity.
On the plus side, global PP demand is expected to increase in every major end market between 2007 and 2012. By 2012, the film and sheet market will be leading the way with 7 percent annual PP growth. Injection molded PP uses won't be far behind, with 6.1 percent annual growth.
"The capacity surplus is much more than in the previous slowdown in 2001," he said. "Operating rates are going to go down. There's also potential concern about the effect a demand slowdown in India and China could have."
PP growth rates in 2012 should be 2.2 percent in North America, 9.8 percent in China and 11.3 percent on the Indian subcontinent.
The export boom enjoyed in 2007 by North American PP makers - with growth of more than 40 percent - also might not last much longer, as other parts of the world become more self-sufficient or gain access to PP from lower-cost regions. The amount of U.S. PP exports could fall by as much as 40 percent by 2011, Sagel said.
For North American processors, the 2008-09 price drop could reach 20 percent. Profit margins for nonintegrated PP makers are expected to be negative from 2010-12.
As developing parts of the world build PP capacity, producers in North America and Western Europe "will face hard decisions to close less-efficient plants."
PP makers in those regions "will close unprofitable operations and lose export positions," Sagel said. Overall, he expects about 2.5 billion pounds of combined capacity to be eliminated in North America and Western Europe between 2007 and 2010.