Europe PP market looks to upstream propylene for clues on supply

LONDON (ICIS)–European polypropylene (PP) players are looking upstream to propylene supply for 2018 as some producers warn of potential supply issues this year, according to market sources.

“Propylene supply is structurally short in Europe,” said one supplier.

“If all works [propylene supply in 2018], it will be ok,” said another. “There are already a couple of cracker issues though.”

An experienced market observer said that it could be that “certain” PP producers could be structurally short of propylene, but added that it was not true to say the market overall is short, at least not yet.

“Propylene is always a feast or famine sort of market. It’s not a surprise that the market is so finely balanced but some players are tighter than they expected. Most consumers have contracted more. When the market is tight, people contract for more,” said the market observer.

“Even at the back end of 2016 propylene sellers started saying propylene will be really tight because of planned cracker shutdowns… but then the market got long. People were over-covered.”

This also became clear in the PP market during the first half of 2017.

At the beginning of that planned cracker maintenance season in March 2017, PP spot prices rose to a 19-month high, and sellers were bullish for the whole of the year.

By the second half of the year, however, the situation had calmed down when it became clear there were no supply shortages.

The maintenance season was planned, after all, and no extra production issues affected volumes.

PP was not long, but nor was it short.

The PP market is still waiting for the 2018 February propylene contract to settle.

The ethylene monomer contract settled surprisingly early on Friday, at a €20/tonne increase over its January level.

Some sources saw propylene as stronger than ethylene, but upstream strength in naphtha was being offset by the weak US dollar.

Some spot propylene deals were done above contract levels last week, and some PP sellers continued to inform buyers that propylene supply would be tight throughout 2018.

Therefore, while there is no surplus of propylene supply, it is adequate.

The balance of the market is fine, and there is little flexibility in the system in case of unplanned production issues, but PP producers are largely covered by contracts.

“It’s clear that the ‘buffer’ or flexibility in players’ systems is very much lower, and this will continue going forward as  demand growth is expected to outweigh that of supply at least until those PDH [propane dehydrogenation units] get built,” said the market observer.

“We could say current tightness is partly down to fact that people have over-covered, contracted more, nominating each month at high end of offtakes because of all the warnings over tightening supply.”

Three new PDH units are due to be built in Europe by around 2022, by Austrian polymers major Borealis, Poland’s Grupa Azoty and European major INEOS.

These three on-purpose propylene production units will provide some more PP in Europe as well as propylene.

PP is used in packaging, the manufacture of household goods, and also in the automotive sector.

Pictured above: Antwerp harbour in Belgium, with view of petrochemical plants. European major INEOS said in 2017 Antwerp could be the location for its PDH plant
Source: WestEnd61/REX/Shutterstock

Additional reporting by Nel Weddle

Focus article by Linda Naylor