Tough sledding continued for the North American polypropylene resin market in November, with average selling prices dropping another 6 cents per pound.
After climbing 37 cents in the first five months of 2011, PP prices now have fallen an average of 40 cents, leaving overall market prices 3 cents lower than they were on Jan. 1. The market has been buffeted by extreme price volatility for propylene feedstock.
This volatility has been the result of using light natural gas-based feedstocks instead of crude oil-based ones to produce ethylene and propylene feedstocks. Natural gas-based ethane is less expensive and more plentiful with natural gas deposits being found and developed throughout the region — but it produces less propylene than more-expensive crude-based feeds.
“The world has changed because of light feeds,” said Wilf Kimball, a market analyst with Plaza Group consulting firm in Houston. “North America now has the cheapest ethylene in the world but the most expensive propylene. And it's only going to get worse if we continue to follow the current national energy policy.”
Craig Blizzard — a PP industry veteran now working as an independent consultant in West Chester, Pa. — said the last two months have seen “a cataclysmic falloff in the price of propylene.”
“It's a manifestation of the end of a year of extreme volatility,” he added. “And [PP buyers] are looking to trim back on inventory.”
Regional PP makers, including Braskem SA, are trying to stem the tide of decreases — the 6 cents for November was preceded by a 14-cent drop in September — with an attempt to raise prices by 3 cents per pound effective Dec. 1. But buyers who spoke with Plastics News said that increase attempt might not succeed, given recent price activity and seasonal softness in demand.
PP prices also could be affected in the months ahead by Sunoco Inc.'s Dec. 2 decision to close a refinery in Marcus Hook, Pa. That refinery, which Sunoco had been trying to sell, supplies propylene monomer to a PP plant operated in Marcus Hook by São Paulo-based Braskem. Sunoco had sold the PP plant there, along with two others, to Braskem last year.
In a Dec. 2 email to Plastics News, Braskem officials said they could not comment beyond Sunoco's release.
“Braskem is going to pursue both short- and long-term options to continue to operate our Marcus Hook polypropylene plant, including the use of all legal actions and remedies available,” said the email. “As the largest producer of polypropylene in the United States and the Americas, we remain focused on minimizing any impact of Sunoco's actions to our customers by utilizing our global asset base, including the assets recently acquired from Dow.
“Braskem remains fully committed to our Marcus Hook polypropylene facility and to its continuing operations and we want to reinforce such commitment to our employees and stakeholders.”
Demand for higher-priced PP resin tumbled, and demand from other propylene derivatives such as acrylonitrile also has been weak, said Scott Newell, a market analyst with Resin Technologies Inc. in Fort Worth, Texas. Those materials had been competing with PP for propylene supplies in recent years, he added.
Lower gasoline usage in fall months also has reduced the need for propylene to be used as a gas additive, Newell said.
Through September, North American PP sales were down more than 6 percent, according to the American Chemistry Council in Washington. A domestic sales drop of more than 5 percent was intensified by a drop of almost 19 percent in export sales.
Among end markets, sales of PP into injection molded housewares slipped almost 15 percent in the first nine months of the year, taking about 160 million pounds of demand out of the market. A 10 percent sales drop for PP in packaging sheet eliminated about 70 million pounds of resin demand.
Sales of PP into injection molded cups and containers supplied a rare bright spot through September, growing almost 13 percent and supplying almost 60 million pounds of additional demand.
Both Newell and Kimball said higher PP prices and extended volatility have created opportunities for high density polyethylene and polystyrene to make inroads on PP.
But Kimball added that the higher prices eventually could allow PP imported from other parts of the world, particularly Asia, to make its way to North America.
“Polypropylene [processors] aren't going to pay more if they don't have to,” he said.
Blizzard wasn't as sure of the chances of imported PP reaching North America in significant amounts. “Imports could happen, but it's not an easy transition,” he said. “You'd have to convince users that they'll have a steady stream of supply in order to go that route. I don't think [imports] will be the core of the business.”
Looking ahead to 2012, Newell said scheduled maintenance turnarounds on propylene units could create an atmosphere of rising prices in the first part of the year. Kimball agreed, but didn't think it would be as volatile as the unprecedented 2011 North American PP market.