16 November 2012 09:27 [Source: ICB]
Polypropylene (PP) is used in a range of products. Three forms of PP are produced: isotactic, syndiotactic and atactic. Isotactic PP (IPP) is the main form manufactured. The largest outlet is injection moulding applications.
Demand was generally weak in China and southeast Asia for the first half of the year because of tight credit terms imposed by the government in China, which curtailed domestic demand, while poor economic performance in the US and eurozone dampened export demand for Asian plastics manufacturers.
The supply of homo grades such as raffia, injection, biaxially oriented polypropylene (BOPP) film, IPP film, cast film and fibre from the Middle East was abundant in the first quarter of 2012. But the availability of raffia grade became tight in the second quarter as producers switched production output to more lucrative film and copolymer grades. This trend was then reversed late in the third quarter, as the premium of film grades over raffia dwindled.
The upswing in prices in Europe in the second quarter of 2012 has reduced significantly export quantities of Middle East origins to Asia. Asia's largest consumer, China, for instance, only received 250,000 tonnes of Middle East imports in the second quarter, 34% lower than in the first quarter. Although prices in Europe started to fall in the third quarter because of the traditional summer lull, export volumes from the Middle East did not recover significantly as congestion at the Saudi Arabian ports began ahead of the Eid ul-Fitr festivals. In the third quarter, China imported 350,000 tonnes of Middle East imports, 7% lower than in the first.
Supply from Asian naphtha-based producers was also on the lower side, given reduced run rates at South Korean PP plants in some parts of 2012 because of severely depleted margins, coupled with scheduled turnarounds and outages at Chinese PP facilities.
Homo and copolymer PP prices rebounded at the end of October, following four straight weeks of price decline. The recovery was in line with the firmer discussion levels for November cargoes - a consequence of producers attempting to prevent further margin erosion. On 9 November, for instance, margins for northeast Asian naphtha-based integrated PP producers were at $4/tonne.
Before the downtrend in prices, PP prices had hit a five-and-a-half month high in late September, after two consecutive months of price hikes. This was a result of upward movement in the upstream naphtha and propylene prices and the strengthening in downstream demand towards the traditional manufacturing period in September. Other factors were lower supply because of scheduled maintenance at PP units in the Middle East and China and port congestions in Saudi Arabia.
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 commercialisation process has been slow.
For the rest of 2012, PP demand in Asia is likely to stay low for both domestic and export markets, as regional converters prefer to keep low stock levels during the financial year-end, having largely fulfilled their Christmas orders. However, demand is expected to improve at the end of December when Chinese converters start to build up some stocks ahead of the Lunar New Year in mid-February.
Supply from the Middle East will improve heading towards the year-end, in particular from Saudi Arabia as port congestion eases. Moreover, the new Saudi Polymers 400,000 tonne/year PP unit is expected to achieve more stable operating rates, yielding more products into the market.
However, availability from the United Arab Emirates (UAE) and Oman will remain on an allocation basis because of the scheduled turnarounds at Borouge's and Orpic's PP plants in February 2013.
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