19 October 2012 09:43 [Source: ICB]
The primary outlet for monopropylene glycol (MPG) is unsaturated polyester resins (UPRs), which are used in surface coatings and glass fibre-reinforced resins. The second-largest consumer is functional fluids such as de-icers and antifreeze.
MPG is also used in plasticisers and hydraulic brake fluids. Other uses are in non-ionic detergents and as a humectant in the pharmaceutical, cosmetics, animal foodstuffs and tobacco industries. It is also an excellent solvent and extractant.
Year-on-year MPG demand in North America has been described as down amid the current economic downturn, which has led to oversupply in the market.
Since the beginning of the year, MPG inventory levels across the region have been inching up as buying momentum slowed on the back of reduced production rates at key downstream sectors, such as in the manufacture of UPRs.
UPRs are the largest end-use for MPG in the US (19%), western Europe (39%) and China (80%). Demand for UPR is heavily influenced by regional construction industry trends and the overall health of local economies. UPRs are consumed primarily in the construction, marine and transportation industries, for which the economy is the driving force.
The antifreeze market, which includes engine coolants, has increased its use of MPG, but this accounts for just a small percentage of the total worldwide market. Another important application in North America and Western Europe is as a solvent for liquid detergents.
Regionally, Western Europe is the largest consumer of MPG, followed by the US, China and Latin America.
Sellers are hopeful that demand will pick up from the downstream de-icer and antifreeze sectors ahead of the winter season. However, any pick-up in demand from these seasonal sectors will be dependent on the severity of the winter this year and how many existing MPG volumes are still in stock from the last winter season, which was mild.
In Europe, the MPG industrial grade spot market is being pulled in different directions, but a lot will depend on how seasonal business pans out this winter and where feedstock costs are, market players said at the 46th European Petrochemical Association (EPCA) meeting in Budapest, Hungary.
European producers have lamented MPG's poor profitability for several months this year because of high feedstock propylene costs and the difficulty in passing them on downstream.
The latter has been attributed to subdued demand from the UPR sector, which has been affected by soft macroeconomic conditions.
In the US, MPG values have sagged, showing double-digit decreases since the beginning of the year, as pricing has followed feedstock propylene values closely and demand has remained subdued.
US industrial-grade propylene glycol (PGI) is at 71-79 cents/lb and values are steady going into the fourth quarter. Buyers say that MPG prices have closely followed the price movements of propylene and propylene oxide (PO).
Demand has been described as down from last year's levels as antifreeze and coolant blenders were more conservative in their buying amid falling feedstock prices and declining MPG prices.
MPG is produced by the hydration of PO, and the reaction also produces dipropylene glycol, tripropylene glycols and small quantities of higher glycols. MPG production is driven by PO availability and extra MPG can be produced to balance PO.
Two companies are now producing MPG from renewable resources. Hong Kong-based Global BioChem Technology Group (started up in 2008) and US-based Archer Daniels Midland (started in March 2011) both have bio-based propylene glycol capacity.
Global BioChem Technology Group is expected to start up another polyols plant with MPG capacity in the second quarter of 2012. Several glycerine-to-MPG plants in the US and western Europe planned for 2007-2008 were later cancelled.
The weak pricing spreads and reduced profitability that have prevailed during the past few months have led MPG suppliers to cut operating rates in order to reduce market supply and mitigate downside risks to their profitability.
Lingering global economic uncertainty - particularly with regard to the eurozone debt crisis and slowing growth worldwide - may delay a recovery in the market.
In the coming years, many additional smaller uses for MPG will show varying degrees of growth. In the US, the greatest growth potential is in functional fluids and personal care products. Sales in the primary markets for MPG - UPR and various industrial uses - depend on the performance of the general economy.
For the remainder of 2012, market sources believe that a slowing global economy will continue to be a drag on recovery in demand for downstream chemicals.
Additional reporting by Heidi Finch in London
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