Chicago — The North American polypropylene resin market should see some improvement this year, but tight supplies likely will remain into 2019 and beyond, according to market analyst Joel Morales.
"Demand has been better, but supply has been worse than expected," Morales said Nov. 1 at Global Plastics Summit 2018 in Chicago. "But polypropylene producers have managed to be profitable in most regions of the world."
Even with supply expected to be tight through 2023, Morales, who's with IHS Markit in Houston, said that PP demand should grow at an annual rate of almost 5 percent during that time frame.
"High [PP production] operating rates are going to be required," he added. "Global operating rates should be at or close to 90 percent by 2023."
The North American PP market had a challenging 2018. Challenges to availability of propylene monomer feedstock, and PP production itself opened the door for large amounts of imported PP resin to make its way into the market. A similar scenario also played out in 2016.
"North America had a rough year in [PP] production," Morales said. "Domestic production was down more than 2 percent and sales were down almost 1 percent. But imports set a new record and were up 45 percent. Imports saved the day for North America."
Regional PP production got off to a bad start in 2018 because of freezing temperatures along the Gulf Coast, where most North American PP plants are located. Eight of North America's 10 PP producers had production issues in 2018, according to Morales. "Older assets were running harder," he said.
Some North American PP processors have invested in debagging equipment to help with their purchases of imported PP. Those purchases were made, Morales said, even though in some cases, processors have to wait 6-8 weeks for delivery.
Imports made up 10 percent of North American PP demand in 2018, but Morales said he expects that share to decline next year. "The unplanned outages of the summer of 2018 are unlikely to repeat," he added.
North American propylene monomer feedstock also is expected to return to "globally competitive pricing" in 2019, Morales said.
But higher PP resin prices have placed North American PP in danger of staying competitive vs. other materials, according to Morales. The material now is closer to PET and polystyrene in price, and at times has been more expensive than high density polyethylene.
North American PP supplies have been boosted by the addition of almost 1.3 billion pounds of nameplate capacity through debottlenecking from 2016-18. Almost 200 million pounds should be added next year through more debottlenecking.
In 2020, Braskem is on track to add almost 1 billion pounds of capacity, with Formosa scheduled to add 550 million more. ExxonMobil also is slated to add almost 1 billion pounds of capacity in 2021.
"The market is getting new capacity," Morales said, "but the next few years are still looking tight."