BLOG: China PP-naphtha spreads hit new low as long-term markets shift continues

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson: The average China polypropylene ((PP) price spread over naphtha feedstock costs has so far this year been just $191/tonne, the lowest since ICIS price assessments began in 2003.

China block copolymer and raffia-grade price spreads between 2022 and 26 January this year were 144% lower than their long-term average with injection grade spreads 145% lower.

When you therefore hear people say, “The market is recovering,” point them in the direction of this data. There will have been no full recovery in the Asian PP market until spreads have rebounded by these amounts.

Growth in global PP capacity between 2024 and 2030 would have to be 45% lower than the ICIS base case in order for global operating rates to hit their long-term healthy average of 87%. Based on what we see as a further big surge in capacity in a weak global growth environment, we are forecasting global PP operating rates of just 76% in 2024-2030.

A spate of confirmed and reported PP shutdowns in the Middle East and Asia – some of which are said to be in the Middle East because of the Red Sea crisis – are apparent in the ICIS Live Disruption Tracker.

The tracker calculates available capacity versus nameplate capacity. Some 64,000 tonnes less PP capacity is available in the Middle East and Asia in January 2024 compared with January 2023, according to the tracker.

But the ICIS Supply & Demand Database tells us that global PP capacity is this year scheduled to increase by 7% over 2023, with no less than 74% of the increase due to take place in China. This year’s global new capacity is forecast to total more than 7m tonnes/year.

We should avoid thinking that a little bit of supply tightening or an unexpected surge in demand will quickly return petrochemical markets to their Old Normal. As the ICIS data on PP confirms, this is not a realistic prospect in 2024 and very probably in 2025 as well.

As the second chart in today’s post summarises, major secular shifts are taking place in global petrochemical markets. New ways of navigating short-term markets are needed. New long-term plans are also required.

Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.