US propylene production strong through year against weak demand

HOUSTON (ICIS)–US propylene supply outpaces derivative demand heading into the second half of 2019, and the market is poised to lengthen further on strong refinery rates and cracker capacity additions.

Inventories have been at or near record levels through most of the year and are described as “extremely sufficient to meet demand.”

Despite supply length, spot propylene prices rose steadily in the spring, driving a higher May contract settlement, but have fallen sharply since.

Market participants expect flat to lower prices in the near term as supply outstrips demand, even as INEOS’ Green Lake downstream acrylonitrile (ACN) plant returns to production in July.

Consumption would need to outpace production significantly for the market to return to more balance, but that does not appear likely.

Production should remain strong on high refinery rates ahead of International Maritime Organization (IMO) 2020 regulations and a coming wave of natural gas liquids (NGL) output in west Texas to feed new crackers.

“With so much NGLs coming on line, I could see the market getting very long in H2,” a source said, at least until there is new derivative capacity to soak up supply.

PRODUCTION BUOYED BY HIGH RATES, NEW CAPACITY
Two main factors will bolster propylene production in H2 2019: strong refinery output and new ethane cracker production.

Refinery rates are expected to be strong, especially in anticipation of more robust diesel demand as shippers prepare for IMO 2020 regulations for bunker fuels, which will require ship operators to shift to fuels with much lower sulphur content than currently allowed.

Additionally, five new ethane crackers are slated to begin production in 2019: Indorama, Lotte/Westlake (LACC), Shintech, Sasol and Formosa.

While ethane-only crackers do not yield as much propylene as older, flexible crackers, the output will add to an already saturated propylene market.

Indorama and Lotte/Westlake (LACC) have started their units, but have experienced difficulty achieving on-spec production and are either not running or not fully running. Shintech’s unit is likely the next one to start up, followed by Sasol and Formosa later in the year.

FALLING FEEDSTOCK COSTS
While ethane is still the preferred and most economical feedstock, cracker operators who can run heavier feedslates may favour propane and butane, which yield more propylene.

Pricing for those NGLs have become very attractive and more competitive with ethane, largely on a wave of NGL production out of the Permian Basin of west Texas that has flooded the market hub in Mont Belvieu, Texas.

Prices for US NGLs have plummeted to levels last seen in 2016.

Field production of ethane, propane and butane hit a combined 3.823m bbl/day in March, an all-time high, according to the latest data from the US Energy Information Administration (EIA).

The Gulf coast has not yet seen the “real brunt of it yet”, said Peter Fasullo, consultant at EnVantage, as infrastructure and fractionation constraints remain.

SLUMPING DEMAND
Weak demand has permeated the petrochemical sector in 2019 amid a dim economic outlook and slumping sectors that are usually strong, such as automotive and construction.

Polypropylene (PP) markets, the largest downstream outlet for propylene, have experienced slower-than-expected growth this year.

Some of this weak demand owes to escalating trade tensions between the US and China.

The main outlet for propylene is as a feedstock for polypropylene (PP). Propylene is also used to produce acrylonitrile (ACN), propylene oxide (PO), a number of alcohols, cumene and acrylic acid.

Major US propylene producers include Chevron Phillips Chemical, Enterprise Products, ExxonMobil, Flint Hills Resources and Shell Chemical.

Image above shows polypropylene (PP), which is made with propylene. Photo by Shutterstock

Focus article by Amanda Hay