29 June 2012 17:44 [Source: ICB]
Polypropylene (PP) is used in a wide range of consumer and industrial products. Three forms of PP can be produced: isotactic, syndiotactic and atactic. Isotactic PP is the main form manufactured. The largest outlet is injection molding applications.
In the US, domestic PP demand fell by about 3% in 2011, but exports fell by about 24%, dropping the overall rate by about 4%. However, sales into the injection molded cups and containers market grew by 13%, representing one area of growth for the market.
PP sales in the US and Canada were up by 2.5% in the first quarter of 2012. Domestic sales were up more than 5% during the first quarter as buyers built inventories ahead of higher prices. However, sales are expected to fall in the second quarter as high prices have resulted in weak demand.
The volume of exports from the US fell by 19% during the first four months of 2012, while the amount of imports rose by 21% during the same period.
Producers are working to get their inventories into better balance with demand by cutting operating rates when demand is low. It is believed that average operating rates for 2011 were below 85% of capacity.
US PP prices are expected either to hold steady or fall slightly in July, based on uncertain direction in the feedstock propylene monomer market. Some participants point to a wide spread between refinery-grade propylene (RGP) and polymer-grade propylene prices (PGP) to suggest that PGP prices could fall further, taking PP prices along with them. However, other market participants believe PP prices have hit bottom and will not fall further. PP prices plunged by 25.5 cents/lb during May and June, reaching their lowest level since November 2009.
At the same time, the price of domestic homopolymer bulk injection/raffia PP was at 63-65 cents/lb ($1,389-1,433/tonne), while export prices were at 60-62 cents/lb, bagged material, FOB (free on board) USG (US Gulf ). It is expected that prices will begin to rise in August, but not as quickly as they did during the last upswing cycle.
Bulk technologies include the Spheripol process developed in 1982 by Himont (now LyondellBasell) and the Borstar bimodal polyethylene (PE) process developed in the mid-1990s by Austria-based Borealis.
There has also been development of a metallocene catalyst-based production process to improve resin properties. Commercial quantities of these resins have been made available by producers, although the commercialization process has been slow.
Global PP demand is expected to grow by 5.5%/year through 2015, but high prices and volatility in the US market could result in more demand destruction in 2012.
Imports have started to become a more significant factor, particularly with the implementation of the US-Korea free trade agreement in March. However, long shipment times and logistics issues continue to be major hindrances to a significant increase in the volume of PP imports into the US. Imports of finished goods are more of a threat to the PP market.
High PP costs have caused manufacturers to switch to high density polyethylene (HDPE) when possible. Market participants have said that, where substitution is possible, it has already been done. Further substitution is not expected to have a significant impact on demand loss in the future.
The market continues to face challenges concerning the supply and price of propylene feedstock. Volatility in the propylene market is transferred directly to the PP market through monomer-based formula pricing.
The market could find some relief in 2015, when the first of at least four announced on-purpose propylene plants is expected to go on line.
While there has been some suggestion that the PP market will see more consolidation or even plant closures in the near term as the shortage of propylene continues, some other sources have suggested the advent of on-purpose propylene plants will result in renewed interest in PP.
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