OUTLOOK ’18: Europe MPG, PO to remain healthy into 2018, DPG to be unpredictable

LONDON (ICIS)–European propylene oxide (PO) and mono propylene glycol industrial grade (MPGI) demand is expected to closely follow GDP and seasonality, although demand for di-propylene glycol (DPG) could be more unpredictable next year, amid increasing risk of substitution.

PO into derivative mono propylene glycol (MPG) is expected to closely move in line with GDP, while PO into the polyurethane sector is expected to grow in excess of GDP.

MPGI demand is also susceptible to seasonal variation, with spring/early summer generally the high season for the downstream unsaturated polyester resin (UPR) sector, and the winter typically the peak in activity from the downstream de-icer and antifreeze sectors, depending on weather conditions.

In the week ending 1 December, MPGI spot prices were assessed stable to firmer (see graph below), in line with healthy de-icer demand, which was exerting additional pressure on supply.

The demand outlook for DPG in 2018, however, is less clear. DPG is co-produced during the MPG manufacturing process, but it is produced at a structurally lower yield relative to MPGI.

Demand was strong for DPG during 2017, compounded by structural factors including short supply and spiking prices as a result.

Prices reached historically high levels in 2017 and this has prompted some buyers them to look into substitute possibilities. One buyer of MPGI and DPG said its company has a project underway to look into effective alternatives to DPG, but it said it is still in its early stages, with no results expected before mid-2018.

Despite the efforts by some DPG buyers to source alternatives, there is talk in the market that it may not be easy to find a suitable alternative in the short term that meets functionality or regulatory requirements.

For these reasons, some players expect that demand for DPG is likely to remain healthy in 2018 and to continue to outpace supply, which is likely to remain structurally short, based on no new expected capacity additions or other import options/possibilities for DPG next year.

However, other sources remain more sceptical about DPG demand in 2018, suggesting that if prices remain high, this could lead to a reduction in demand during 2018.

“For DPG it is difficult to say, the prices are so high, this could lead to some reformulation… I think these high DPG prices could destroy demand,” said one player.

Supply of MPGI is expected to be relatively balanced in 2018, provided that there are no unexpected production issues, major turnarounds or changes in demand.

“If i have any concern in terms of supply [for 2018], it will be for DPG rather than MPG,” said one buyer.

Despite Dow and Saudi Aramco’s new joint venture Sadara PO and MPG capacity that came on stream in the Middle East in mid-2017, players said that they have not seen any MPG or PO volume coming into Europe from the new Sadara capacity, believing that the volume is either staying in the Middle East or heading to Asia.

Market sources do not expect this status quo to change in 2018.  However, this has not been officially confirmed.

Supply of PO in Europe is expected to be finely balanced to on the tight side structurally in 2018, on the back of robust derivative performance.  There is some talk that supply flexibility is likely to be limited and the market could quickly tighten, were there to be any unexpected production issues.

As a result, a firmer tendency is being talked for 2018 PO contract adders that are being re-negotiated or for new business.  Price increases of up to three digits are being proposed and discussed for 2018 contract adders, because of structural market factors and for profitability reasons relative to its derivatives.

European December PO contract prices  were assessed at €1,364-1,434/tonne FD (Free Delivered) northwest Europe, in line with the formula level increase.

Overall, players do not expect any significant change for PO and MPG, with healthy market conditions likely to continue into 2018, while the DPG market is likely to be the wild card that is likely to keep everyone guessing.

MPGI is mainly used in sectors such as UPR, de-icer and antifreeze. DPG finds outlets in flavours and fragrances and the UPR sectors, among others.

PO is used to make flame retardants, modified carbohydrates (starches), synthetic lubricants, oil field drilling chemicals and textile surfactants.