Analyst: 'We've never seen anything like this' PP demand crunch

The COVID-19 pandemic created a surge in demand for both polypropylene and polyethylene resins, but both materials now are facing major challenges in finding supply for that demand.

Market analysts Joel Morales and Nick Vafiadis assessed the PP and PE markets March 10 during their firm's online World Petrochemical Conference.

Morales said that PP "has seen an increasing level of volatility, especially in North America."

Amid this volatility and high demand, PP supplies have been constrained by Winter Storm Uri, which knocked out more than half of regional production in February. Higher demand also has sent regional PP prices up 61 cents per pound since December, according to the Plastics News resin pricing chart.

"Polypropylene demand is high for everything in North America," Morales added. "Converters can't run full as we speak.

"The market is on fire as far as being oversold," he said. "We've never seen anything like this. COVID benefited polypropylene to the sell side. Longer-term, a trough could be coming, but it won't be as bad because of the new demand."

Eight of 10 North American PP suppliers now are operating under force majeure supply limits as a result of the ice storm, according to Morales. He added that China is playing a larger role in global PP markets, with its share of total demand growing from 16 percent in 2000 to 40 percent in 2020.

The North American PE market is experiencing similar challenges, according to Vafiadis.

"We expected a downturn this year, but COVID and extreme weather changed everything," he said. "We've seen the market flourish in ways that we hadn't anticipated."

COVID-19 "became a demand driver," he added, as more people worked from home and consumers changed their buying behavior.

The "epic freeze" that hit Texas in February "crippled production" on the Gulf Coast, Vafiadis said, and PE makers "haven't yet had the chance to recover." The freeze followed two major hurricanes that hit the region in August and September.

The regional PE market also has seen higher prices, with 36 cents taking hold since June and another 7 cents on the table for April. Vafiadis said that after prices peak, they could be down as much as 19 cents for the rest of 2021 as inventories recover.

PE demand growth of 4 percent in 2020 could be as high as 5.4 percent in 2021, he added. As with PP, China is playing a growing role in global PE demand. China accounted for 33 percent of global demand in 2020, according to Vafiadis, with that number expected to grow to 40 percent by 2025.