The North American polypropylene market has been turned upside down in the last couple of years, and that new reality is expected to continue for the near future.
From 2000 through 2007, the market was characterized by low production costs, low prices and fast-rising demand, Chemical Market Associates Inc. market analyst Esteban Sagel said at his firm's World Petrochemical Conference, March 23-24 in Houston. Demand was tight and the market produced an average profit.
Since 2008, things have changed. The North American PP field now features high production costs, high prices and reduced demand, but improved profit. For the most part, higher prices have come about as abundant natural gas resources in the region have yielded less propylene monomer than previous crude-oil-based feedstocks did. This discrepancy has sent propylene prices up, taking regional PP prices up as well.
Propylene monomer feedstock has been the driver of this shift, according to Sagel. In the earlier period, propylene was less expensive than ethylene, but it now costs more. PP also had been an affordable choice among major commodity plastics because of its low cost per cubic inch. But the material's performance in that area now is inferior to that of PVC, as well as high density and linear low density polyethylene.
As a result of these higher prices and the effects of the global recession, PP is seeing lower demand growth rates on a global basis. After growing at a rate of almost 6 percent in the 2000-07 period, global PP demand growth slowed to less than 3 percent a year in 2007-10. From 2007-15, global growth is expected to average 4.6 percent annually.
This, in turn, could lead to increased competition on PP from HDPE, polystyrene and other materials, Sagel said.
You, as consumers, are seeing it already, he added. Older polystyrene is back in yogurt cups vs. polypropylene. Polystyrene has a more stable price, but it's a little more expensive.
So far, PP producers have been able to push numerous price increases along to their customers including a massive 17-cent hike in January. In pricing, producers have prevented oversupply, since many of them own PP assets in numerous parts of the world. The exception to this practice, Sagel said, has been northeast Asia, where there's little cross-ownership. As a result, that region is oversupplied with PP.
Another likely possibility of this extreme market fluctuation is increased production of finished goods made from PP in other parts of the world beside North America.
Finished goods will flow from low-cost regions to high-cost regions, Sagel said. There's a lot of potential for finished [PP] goods to come into North America in films and fiber products.
Most recently, North American PP makers throttled back production in February to bring supply back in balance with lower demand rates seen in January and February, according to a recent report from Resin Technology Inc., a consulting firm based in Fort Worth, Texas.
In separate end markets, raffia fiber will be the world's fastest-growing end market in the 2010-15 period, averaging growth of just over 7 percent annually. PP demand in film and sheet will come in second with 5.8 percent growth, while injection molding will be third at 5.2 percent.
Unfortunately for North American PP buyers, Sagel said the region's PP prices will be the highest in the world into 2013, even with much expected volatility. He said he expects North America's prices to line up with those elsewhere in the world later in the decade.