07 July 2008 15:44 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS news)--Initial third-quarter European ethylene and butadiene contracts settled relatively smartly at the start of July with prices pushed up sharply on the back of the upsurge in oil, while propylene remained on the starting blocks.
Buyers and sellers had yet to agree on the level of feedstock-related increase the top end of the C3 chain can absorb. But that is hardly surprising.
Polypropylene (PP) demand wavered at the beginning of this year and has struggled to recover since. The impact of that polymer demand uncertainty has had its implications upstream.
Buyers who were looking in May for a three digit decrease in the contract price are now being asked to countenance a three digit increase. Not surprisingly, they are unhappy.
PP may be one of the strongest growing polymers but growth is very much oriented towards the world’s fast developing manufacturing and consumer markets. Western Europe, North America and ?xml:namespace>
The industry understands this and supply chains are being reoriented accordingly.
Older production units have been shut to be replaced with more modern, technologically-advanced plants.
Propylene demand in
Easing demand growth, increased production and energy market volatility provide the backdrop to current market conditions. Indeed one analyst believes that the industry is “entering the declining part of an atypical cycle with squeezed margins but high cost levels”.
Last month, Europeans were taking advantage of a PP arbitrage window with
This is a reflection of the fact that the European propylene business is entering a tricky phase with demand growth expected to be low as the region moves from being a net exporter to a net importer of PP.
A just-released study from consultants Nexant Chem Systems shows that while propylene capacity is quite evenly divided between the main consuming regions of North America,
Propylene availability in the
Development in the Middle East is mainly for export-oriented PP production and, while small at present, the
The Asia-Pacific region is coming to predominate in terms of production capacity with new volumes coming from both naphtha crackers and refineries.
Chem Systems suggests, however, that propylene availability from refinery sources will be limited by an increasing preference for hydrocrackers instead of fluid catalytic crackers (FCCs) in new refineries.
Global propylene consumption was 73m tonnes in 2007 and is forecast by the consultants to grow at 4.7% a year between 2007 and 2015.
Tight supply has been a concern but is likely to ease with an expected 20m tonnes of new capacity coming on stream in the Middle East and
The impact on the European propylene market will be significant as PP imports rise and export opportunities are put under greater pressure.
North American producers are likely to be hit even harder as export opportunities are lost and a home has to be found for more product in the domestic market.
This report suggests that global propylene operating rates will stay at peak levels through 2008 before a steady decline towards a 2011-2012 trough.
Global propylene growth that averaged 5.5% between 1995 and 2007 is expected to slow to 4.7% between 2007 and 2015.
An additional 33m tonnes of propylene demand is expected by 2015.
In many respects, the propylene business is constrained by growth. The opportunities in PP are significant but largely for those in the right place. The same is true for the other fastest growing propylene derivative, propylene oxide.
For players in the mature markets, the scene is being set by shifts in rates of demand growth and costs.
Tight supply is easing. Chem Systems notes that no major capacity developments are expected in western Europe or North America over the next few years due to lack of demand and increasing global competition.
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