Pricing volatility hit the North American polypropylene resin market hard in 2016 — even as demand for the material looks to be almost flat for the year.
Through November, price volatility — combined increases and decreases — totaled almost 30 cents per pound, according to the Plastics News resin pricing chart. Regional PP prices now are down a net of 4 cents per pound since Jan. 1.
North American PP sales essentially were flat in the first 10 months of 2016, according to the American Chemistry Council. Domestic sales were down almost 2 percent, while exports surged almost 49 percent.
Prices first rose, then fell, then rose again, as domestic producers dealt with substantial competition from imported material for the first time in many years. Imports were able to access the North American market as tight supplies of propylene feedstock and a lack of new capacity drove up prices for PP resin and led existing PP sites to run at close to full production.
“For a long period of time, North American polypropylene was a global exporter, then it became high-priced vs. the rest of the world because of propylene costs,” Braskem America CEO Mark Nikolich said in October at the K 2016 trade show.
“There had been no new capacity since 2003, so when there was demand growth in 2015 and 2016, it stretched the asset base and made those assets run hard,” added Nikolich, whose firm is North America's largest PP maker.
After a few months of increased imports, North American prices had fallen to the point where they were no longer able to benefit from North American demand. But without new capacity, Nikolich said the same thing could happen next year — although perhaps in a less extreme way.
“Polypropylene imports are never too far away if domestic producers try to increase margins too much,” said Phil Karig, managing director of the Mathelin Bay Associates LLC consulting firm in St. Louis. “Whatever incremental sales they can squeeze out — which weren't much at all in 2016 — will regularly face margin pressures. 2017 looks to be much of the same.”
And with low demand growth expected, regional PP makers don't have a lot of options right now, he added. “Rather than focusing on demand growth in 2017,” Karig said, “the PP market will continue to play chicken with imports in the hopes of making superior margins for short periods of time when the market is tight due to seasonal demand spikes or plant outages.”
The North American PP field “is in kind of holding pattern right now,” according to Craig Blizzard, an industry veteran who now runs Blizzard Consulting in Chevy Chase, Md. “It will need capacity expansions at some juncture, but in the meantime, debottlenecks may have added 200 [million] or 300 million pounds of capacity. On-purpose propylene also should have a positive effect.
“Producers should be more profitable over the course of time, but it's a slow growth market domestically,” he added. “Bringing back some manufacturing of products like film, fibers and injection molded parts to the U.S. should help, and there are prospects of that, for sure.”