Chemical Profile: Europe PP

30 August 2013 09:36  [Source: ICB]

Polypropylene (PP) is used in a wide range of consumer and industrial products, with key applications in packaging, fibres and automotive parts.

In recent months, European producers have been forced to cut production to accommodate poor demand in the PP sector. Volumes in the fourth quarter 2012 and the first four months of 2013 were particularly weak, and they only picked up in May, when low prices brought buyers back to the market. Since then, demand has remained steady, but both buyers and sellers keeping stocks at a minimum workable level to avoid being left with high-priced stock in an uncertain pricing situation.

Imports from traditional sources have been lower in volume in 2013; spot imports from traders have remained low because of uncertainty in economic and commodity markets.

Imports from the Middle East have been absorbed because most recent capacity additions have joint venture partnerships in Europe, who have a vested interest in maintaining a strong European PP market.

Volatility in upstream naphtha and crude oil pricing has added to the uncertainty that underpins reduced output and consumption.

The next significant increase in capacity expected to affect the balance in Europe is Borouge 3, which will bring on stream close to 1m tonnes of PP in Ruwais, in the United Arab Emirates (UAE) in mid-2014.

PP prices rose in August 2013, in line with the €50/tonne increase in the August propylene contract. A rise is widely expected in the September monomer contract, based on better-than-expected demand, low inventories along the chain, higher feedstock costs and a sharp fall in butadiene (BD) contract prices that has put more pressure on cracker margins. While many sources argue that the cost of BD should not impact PP prices, it is still an argument that some producers propose.

Any increase in the September propylene contract will also be targeted in the PP price as a monomer hike will affect producers' margins again. Some producers intend to seek margin improvement on top of any increase in the propylene contract.

Net homopolymer PP prices are trading around €1,300/tonne FD (free delivered) NWE (northwest Europe).

Three main licence-holders of PP technology in Europe include INEOS, Dow and LyondellBasell.

The INEOS Technologies Innovene process uses gas-phase technology in its PP process.

Dow is looking to sell its PP licensing and catalyst business, which includes the Unipol process used for PP production. Its UNIPOL PP Process Technology is an all gas-phase technology based on a fluidized bed reactor system.

LyondellBasell's dominant licensing process is Spheripol, which combines bulk-phase polymerisation in tubular loop reactors with gas-phase polymerization. The company has also developed a fluid bed, multizone circulating reactor, Spherizone, that can generate different materials and extend the range of properties.

In addition to this, Austria-headquartered Borealis has adapted its Borstar bimodal polyethylene (PE) process to make PP.

In the short term, supply and demand look balanced but mid-to-longer term production is expected to remain reduced, as demand in Europe is still not strong, in spite of the recent news of the emergence from recession of the Eurozone.

Some older plants are expected to close.

The start-up of the new Borouge 3 capacity in UAE is expected to have an impact on PP markets globally. Material from the site is not expected to be commercially available before the second half of 2014.

European naphtha-based producers' margins are expected to continue to come under pressure, mainly from competition in the polyethylene (PE) sector, as low-cost gas-based production increases, formerly in the Middle East and imminently in the US.

Propylene availability will not be affected as much as ethylene, and PP costs are expected to remain relatively high in comparison with PE.

By: Linda Naylor
+44 20 8652 3214

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