Markets for polypropylene and polyethylene resins could be facing rough times ahead, according to recent comments from industry analysts.
In a recent blog post, John Richardson of Houston-based ICIS said that the global PP industry "is facing an unprecedented demand and supply crisis," brought on by what he sees as a failure to recognize that China's growth was going to slow to at least half its annual rate of 2000-2019.
Richardson added that if China's annual average PP demand growth slips to 5 percent from its long-term historic average of almost 11 percent, global PP capacity in 2024-2030 would need to be almost 18 billion pounds lower than currently expected for producers to have a "healthy" average operating rate of 87 percent.
In a more extreme scenario, if China's PP demand growth falls 1.5 percent per year between 2024 and 2030 — which Richardson said "is perfectly possible" — while other developing countries see PP demand growth, global PP capacity in that period would need to be almost 40 billion pounds lower than expected to achieve that same 87 percent operating rate.
"The core of the problem is that consensus forecasts for China's long-term growth in PP were much higher than even our solid 5 percent base case just a few years ago," Richardson wrote. "This was despite evidence as long ago as 2011 that we would eventually be where are today, which is an economy facing major headwinds from an aging population and overreliance for growth on real estate."
In the PE market, consulting firm C-MACC of Houston recently said that U.S. contract PE prices "seem set for another sizable negative non-market adjustment based on spot price trends." It added that this is happening even as U.S. producers have nominated contract price hikes for August.
U.S. PE producers "typically nominate prices higher throughout hurricane season so they can quickly implement upticks if outages occur. Higher oil or outages are needed to spur prices," C-MACC said.
In a recent market update, market analyst Mike Burns said that "without a substantial increase, domestic [PE] demand will not influence market prices through the remainder of the year." Exports and supplier production rates "will be the defining component," he added.
"Supplier production rates and continued support of the near record exports will impact inventories and resin price negotiations for the approaching 2024 supply contracts," Burns said.