Like a wounded boxer coming off the ropes, North American makers of polypropylene have raised prices with a vengeance since Aug. 1.
The sector looked to be running out of steam after achieving only 1 cent of a 6-cent attempt in July. But in a stunning reversal, 4 cents of a 5-cent attempt now have taken hold in August.
Producers have been very diligent about managing supplies of resin, said PP market analyst Scott Newell at Resin Technology Inc. in Fort Worth, Texas. They saw exports drop off and they throttled back production. They know they can't let inventory get out of control on them.
The move is tied in to a sharp spike in prices for propylene monomer feedstock. Propylene supplies for PP use have been constrained by demand from the gasoline market and from producers' use of natural gas-based ethane feedstock, which produces less propylene than crude oil-based naphtha feedstock. Ethane increasingly has been used because of low natural gas prices, compared with crude oil's price.
That's why producers built flexible steam crackers so they could run on either feedstock, said Kathy Hall, executive editor of the PetroChem Wire pricing newsletter in West Orange, N.J. Last August, prices were so high that polypropylene was being made at a loss, and that killed the export market. That was painful but it could happen again.
It makes me wonder if we're looking at a new cycle, with a six-month run-up and then a collapse, Hall added. We've switched from a demand-driven to a supply-driven market right now, and that's never really been sustainable.
A temporary outage at a steam cracker jointly operated by BASF Corp. and Total Petrochemicals USA Inc. in Port Arthur, Texas, also has affected regional propylene supply, sources said.
Part of the problem is that refineries are running at reduced rates, so there's less material available, added Joe Congdon, a PP market analyst with Townsend Solutions in Houston. Exports have done OK, because only half of the new [PP] capacity that was expected in India and the Middle East has come on, but exports could disappear without warning.
Even with North American PP export sales rocketing up 75 percent in the first half of 2009, total regional sales were down 7 percent, according to the American Chemistry Council in Arlington, Va. Taking out exports left the domestic PP market with a sales drop of 14 percent.
If exports continue their current decline, suppliers' results should worsen, since buyers contacted this week weren't optimistic when speaking of demand in August and for the rest of 2009.
We've bought a little more [PP] here and there, but that's been to take advantage of pricing situations instead of buying resin we needed for our own production that month, a PP buyer in the Midwest said.
With the 4-cent increase, regional PP prices now are up an average of 26 cents per pound since Jan. 1. That works out to a 46 percent price hike on injection molding grades of homopolymer PP, according to the Plastics News resin pricing chart.
Market sources also said that ExxonMobil Chemical Co. has nominated an additional 5-cent-per-pound price hike on PP for Aug. 15, but that no other supplier had matched that move as of Aug. 13.
Longer-term, Congdon said Townsend expects global PP demand to grow almost 4 percent annually from 2009-13, but in North America the PP growth rate in that period will be only 1 percent.
North America may have reached its peak of polypropylene consumption, he said. It's still a big market, but producers are going to have to make some tough decisions to shut down capacity.
PN also is adjusting prices for acrylic resin on this week's resin pricing chart to show changes that have occurred since early 2008.
Pressure on acetone and other raw materials sent acrylic prices up an average of 25 percent in 2008, sources said, but those pressures have relented in 2009, sending prices down an average of 10 percent through July.
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