Polypropylene: a brief respite?

17 March 1997 00:00  [Source: ACN]

PP prices are up for the first time since Q4 1996, but rising propylene costs and plant expansions due this year threaten the profit margins of producers. Gillian Brent investigates

POLYPROPYLENE prices rose in early March for the first time this year, bringing some relief to producers. However, rising raw-material costs and increasing PP capacity continue to threaten margins.

The improvement may be sustained through Q2 when a concentration of turnaround will tighten supply. But even though delays in the startup of some plants have helped, another round of expansions is due onstream later this year.

In any event, the strength of Chinese demand remains the barometer for Asian markets, especially with so many companies targeting China for sales of surplus product.

March PP prices climbed by US$20-50/tonne to US$800-850/tonne cif Asia. Markets have been feeling the impact of the new Asian capacity from Q4 1996 and prices have remained weak since then. Previous attempts by producers to hike prices to cover rising propylene prices have been either shortlived or unsuccessful.

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PP prices gained a small improvement in November, when Chinese buying surged ahead of the expiry of import licenses at the end of 1996. However, these increases were soon eroded in December when Chinese buying dwindled.

The squeeze on margins has left established producers fighting to stay in profit and newcomers faced with the prospect of bringing plants onstream when markets are already weak and expected to deteriorate.

The increased demand for propylene as a result of the concentration of new PP plants starting up has resulted in extremely tight supply in the region, and kept monomer prices under considerable upward pressure.

Prices have surged to US$620-630/tonne cfr SEA for March shipments, an increase of almost US$100/tonne from the beginning of January.

Some PP producers have been unable to source sufficient propylene to run their plants at full capacity. India's Reliance Industries planned to start up its 340 000 tonne/year plant in Hazira, Gujarat, before it brought its cracker online.

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The company commissioned the first line in September and the second line in January. However, it has been unable to operate both lines at full capacity because of the delayed startup of its cracker, which was due onstream in Q4 1996.

However, Reliance has resolved technical problems with the cracker and planned to resume commissioning on 5 March. Company sources expect commercial production to be reached by the end of March, which will allow PP production to be lifted to 100%.

HMC Polymers began commissioning its second 160 000 tonne/year PP plant in Mab Ta Phut, Rayong, Thailand, in November 1996. Mechanical problems at the plant kept it from reaching full capacity during the first month of operation. But output is now constrained by tight supplies of feedstock, a company source said.

Thai Polypropylene started up a 140 000 tonne/year plant in February 1997, lifting its total capacity to 260 000 tonne/year. The company's production is also limited by tight propylene supply.

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The startup of Petrocorp's 160 000 tonne/year plant in Mariveles, the Philippines, was originally scheduled for Q4 1996. However, delays with the construction of a jetty have pushed back the startup date.

A Petrocorp source told ACN that work on the jetty is completed and the first propylene cargo will be imported in April. Startup of the PP plant is likely in May.

Suppliers expect PP to tighten in Q2 with the high number of cracker shutdowns in Northeast Asia.

Supply will be reduced by shutdowns at PP plants which are integrated to the crackers and also by limited feedstock availability for those plants not having shutdowns.

Other market players are less optimistic about the chances of further price increases. 'Although the delay in the startups of the Reliance, HMC Polymers and Petrocorp plants have contributed to the recent strengthening of PP markets, they will be fully onstream soon,' one source says.

The next round of PP expansions in South Korea, due to start in 1997, includes those of Hyosung T&C (formerly Tongyang Nylon), Hanwha Chemical and LG-Caltex Oil. If the smooth startups of Daelim Petrochemical and Yukong's new plants in Q4 1996 are anything to go by, it is likely they will proceed on schedule.

Much of the new capacity being built in Asia is targeted at satisfying Chinese demand. More and more Asian PP players are competing to sell surplus products in China. The size of Chinese imports is a key determinant in market strength in Asia.

Hong Kong polymer traders are concerned that the new government in China will impose stringent anti-inflationary and anti-smuggling controls with could constrain imports to the country.

Even if Chinese buying remains unchanged, Northeast Asian producers are gradually losing Southeast Asian export markets.

The drive for self-sufficiency in PP has led to a significant portion of Asia's new PP capacity being planned for Southeast and South Asia.

Most of the over 1m tonne/year of new PP capacity to come onstream during the one-year period to June 1997 is located in India and Southeast Asia.

New production in India includes Indian Petrochemical Corp Ltd (IPCL)'s 75 000 tonne/year expansion at Baroda, as well as the new Reliance, plant. IPCL commissioned its plant in September last year.

Southeast Asian PP supply should be balanced with demand by 2000, according to Chem Systems' forecast.

Indonesia is expected to remain a net importer of PP in 2000 when capacity will have reached 690 000 tonne/year, says Chem Systems. However, the country will no longer be relying on propylene imports in 2000, when Indonesian capacity and demand are expected to be balanced.

Malaysia is forecast to be a net importer of PP until 2000, when it could move to either a balanced or an export position.

The country is also expected to remain a net importer of propylene until 2000. Demand has outstripped supply since 1996.

Petronas has some flexibility with the propylene supply from its MTBE/propylene plant in Kuantan.

Petronas has been operating the plant in a high propylene output mode because of a shortage of methanol for MTBE production since December, allowing the company to take advantage of strong propylene markets by exporting surplus cargoes.

The majority of PP output in Singapore is destined for export, a situation which will remain unchanged when The Polyolefin Co (TPC) expands its capacity this year. TPC will be starting up a 120 000 tonne/year plant in Q2, lifting the company's capacity to over 250 000 tonne/year.

Propylene feedstock is supplied from Petrochemical Corp of Singapore's (PCS) cracker.

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The PP expansion will start alongside PCS' 515 000 tonne/year No2 cracker, which is scheduled to be commissioned in April.

Singapore is forecast to have a slight surplus of propylene by 2000, when total capacity will reach 698 000 tonne/year, according to Chem Systems.

The expansions of HMC Polymers and Thai Polypropylene will lift Thailand's PP capacity to 740 000 tonne/year in 1997. By 2000, this will climb to 990 000 tonne/year and the country will shift to being in a net-export position, says Chem Systems.

However, Thailand will continue to be dependent on imports of propylene in 2000, even though production is forecast to reach 1.035m tonne/year.

The Philippines will become a propylene importer this year when Petrocorp starts operations at its 160 000 tonne/year plant in May.

Petrocorp will need to continue importing feedstock until the country's first cracker comes onstream in 2000.

PP demand in the Philippine will outstrip capacity. The country is expected to remain a net importer of PP beyond 2000.

New PP capacity in Asia ('000 tonne/year)
Company	Location	Capacity	Startup
India India Petrochemical Corp Ltd      Reliance Industries	Baroda Hazira, Gujarat	75 340-360	Sept 1996 Sept 1996
Singapore The Polyolefin Co	Pulau Ayer Merbau	120	Q2 1997
South Korea  Daelim Petrochemical Yukong Hanwha Chemical LG-Caltex Oil Hyosung T&C (formerly Tongyan Nylon)	Yeochon Ulsan Yeochon Yeochon Ulsan	100-120 150 120 120 100	Sept 1996 Nov 1996 mid-1997 H2 1997 H2 1997
Thailand HMC Polymers Thai Polypropylene	Mab Ta Phut Mab Ta Phut	160 140	Nov 1996 Q1 1997
The Philippines Petrocorp	Mariveles	160	May 1997

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