Polypropylene looks to continue traveling down a twisted road — but the addition of on-purpose propylene feedstock in North America might smooth out some of those tricky curves.
On-purpose propylene production — as opposed to the material being made as a byproduct of the oil or gas refining process — should increase regional capacity by at least 5 percent and possibly by as much as 35 percent in the next several years, according to industry analyst Esteban Sagel.
Sagel is Americas PP director for IHS Chemical, a consulting firm in Houston. He spoke at the Plastics Processors Conference hosted by his firm, Oct. 24-25 in Chicago.
The new propylene might help keep PP production in the region, but it might not do too much to lower prices, Sagel explained.
On-purpose production “moves propylene to a higher cost position,” he said. “But PP will remain expensive vs. other resins that use ethylene as a raw material. [PP] could be as much as 40 percent more expensive in North America.
“We're no longer going back to the cheap [PP price] levels of 10-15 years ago, so we have to get used to this.”
Propane dehydrogenation (PDH) will account for 45 percent of on-purpose propylene production, with North America and the Middle East leading the way with that process. In North America, propane is available from shale natural gas.
Use of shale gas “has changed the economic profile of propylene production,” Sagel said. “It will result in investment in PP in North America for the first time in a long time.”
North America is set to become a net importer of PP from 2012-15, but new PP will allow the region to become a net exporter again beginning in 2017.
As much as 7.5 billion pounds of new PP capacity could be added in North America between 2014 and 2019, Sagel said. Most of this new capacity will be aimed at exports. North American demand is growing, he said. But it is still affected by volatility in price and demand. New PP capacity in 2014 would improve supply and ease volatility somewhat.
Producers have kept a tight handle on production and inventories in the last two years in North America, Sagel said. “They have corrected very rapidly to keep the market tight,” he explained. For 2012, North American PP demand is set to be up 2.9 percent, with export losses dampening domestic demand growth of 5.5 percent.
North American PP prices should peak in 2015, Sagel said, before entering a decline phase that should last until 2019. During this time, integrated PP makers should benefit the most.
Globally, PP remains oversupplied, which should result in relatively low operating rates of 80-84 percent from 2012-17. Most of the excess capacity is in northeast Asia, where low resin prices are affecting the global market by lowering the cost of finished goods made from PP.
In China, the PP market is becoming more self-sufficient. In 2009, imported PP supplied 40 percent of China's needs. By 2017, that total should be down to 13 percent.
Sagel also said that a global PP price may begin to develop in the not-too-distant future. That price would be set by non-integrated PP economics, he said.