FocusUS PP demand slumps on higher prices

14 January 2011 22:12  [Source: ICIS news]

By David Barry

HOUSTON (ICIS)--US polypropylene (PP) demand will suffer a double-digit percentage drop in January because of sharp price increases, a producer said on Friday.

Much of the US PP market is tethered to polymer grade propylene (PGP) contract benchmarks, and January PGP contracts rose 17 cents/lb ($375/tonne, €281/tonne) over December.

For January, US domestic PP homopolymer prices were heard in the mid-upper 80s and low 90s cents/lb DEL (delivered).

“The PP hikes surprise me, because nothing much has changed from a demand perspective,” a buyer at a large compounder said. The buyer planned to take less volume in January, opting to consume previously purchased inventory.

Faced with severely-limited export options and depressed domestic sales, the US PP industry would operate at rates of 68-70% in January, traders predicted.

Such low operating rates would require some lines to be idled for part of the month, sources said.

If feedstock propylene costs do not correct quickly on reduced PP demand, market participants said they would be deeply concerned about a structural feedstock shortage that would threaten the North American PP industry.

“As we have indicated in the past, we are at risk of destroying American manufacturing demand for polypropylene in a permanent fashion,” US producer Pinnacle Polymers said in a market note dated 13 January.

The note said the company was looking at increases in feedstock prices for January and February that are “unprecedented in magnitude.”

Brokers said the PP increases were driving a definite demand shift toward high density polyethylene (HDPE) injection, which can be subsituted for PP in certain applications such as housewares.

The PP resin price increases would drag on demand because processors would be unable to pass along the increases immediately, and would instead focus on selling off existing finished goods.

Also, price-conscious retailers could decide to devote valuable shelf space to products not made from expensive PP.

“I don’t know how [converters] can accept those kinds of increases and still be profitable,” a trader said. “Long term, people should be getting out of PP.”

A PP producer expressed confidence that the market would recover, however.

“I think there’s strong fundamental demand on a relative basis, and that is continuing to grow,” the source said. “Also, people don’t convert from PP based on one month of high prices.”

Major US PP producers include Braskem Americas, Formosa, Total, Dow Chemical, ExxonMobil, Flint Hills Resources, INEOS, ConocoPhillips, Phillips Sumika and Pinnacle Polymers.

($1 = €0.75)

For more on polypropylene, visit ICIS chemical intelligence
To discuss issues facing the chemical industry, go to ICIS connect
Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

By: David Barry
+1 713 525 2653

AddThis Social Bookmark Button

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly

Get access to breaking chemical news as it happens.
ICIS Global Petrochemical Index (IPEX)
ICIS Global Petrochemical Index (IPEX). Download the free tabular data and a chart of the historical index