UPDATED — Formosa Plastics Corp. USA has kicked off what may be the start of a new wave of North American polypropylene capacity.
In a July 2 news release, officials with Livingston, N.J.-based Formosa said that the firm will build a new, state-of-the-art polypropylene production line at its Point Comfort, Texas site.
“This will be the first new polypropylene production to be built in the U.S. in many years,” they said. “It continues the company's long-standing commitments to its customers, its employees and the communities in which it operates.”
Formosa officials added that the project team has been assigned, detailed engineering design is proceeding and applications for environmental permits are being prepared for submittal.
Most announced commodity resin expansions have focused on polyethylene, since that material has benefited from newfound supplies of natural gas throughout North America.
But several firms — including Dow Chemical Co. — are increasing production of propylene monomer capacity through propane dehydrogenation (PDH) as well. The Formosa announcement — and others that may follow — will help that new propylene find a home within North America.
Formosa's new PP unit likely will use propylene from a new PDH unit that the firm will open in Point Comfort in 2017. Formosa also is building a new olefins cracker and a new low density PE line there. Both of those will open in 2017 as well.
All three of those projects were announced in early 2012. Formosa officials at the time cited new natural gas supplies as a reason for the massive $1.7 billion expansion. The LDPE plant will have annual capacity of about 660 million pounds. The olefins cracker will include 1.8 billion pounds of annual capacity and the PDH unit will be able to produce 1.3 billion pounds of propylene per year.
The LDPE unit will be Formosa's first in Point Comfort, where it already produces high and linear low density PE. The firm also already operates two ethylene crackers and a PVC production unit at the site, which employs 1,800.
Market veteran Phil Karig said that more announcements of new PP capacity may be in North America's future.
“Formosa is the first polypropylene producer to announce that they'll backward integrate polymer production to their own PDH plant, but they're certainly not going to be the last,” he said. “Even with crude oil prices down substantially in the last year, natural gas prices and the security of monomer supply through PDH units will continue to be attractive to Formosa and to other producers.”
Karig — managing director of the Mathelin Bay Associates LLC consulting firm in St. Louis — added that with current moves toward on-purpose PDH propylene monomer production via the propane in natural gas liquids. The PP industry “will finally be able to start benefiting from the shale revolution, as well.”
Market analyst Scott Newell said that Formosa's PP announcement “is another sign that market dynamics have dramatically changed.”
“Two years ago you wouldn't be able to convince any investment dollars over to the polypropylene side,” said Newell, who's with Resin Technology Inc. in Fort Worth, Texas. “Demand was stagnant to declining, margins were terrible and [propylene] monomer wasn't available. All that is changing.”
“Monomer supply has improved and will continue to improve with two world-scale PDH units coming over the next year. The improved monomer supply has lowered U.S. polymer-grade propylene prices to competitive levels. It's also allowed for the growth in polypropylene which we're currently seeing in 2015.
“The growth in polypropylene has increased operating rates and given producers pricing power which has led to much improved margins,” Newell added. “It's been quite a turnaround, and it's now attracting investment dollars.”
