Chemical profile: Europe MPG

USES

The primary use for monopropylene glycol (MPG) is in unsaturated polyester resins (UPR), used in surface coatings and glass fibre-reinforced resins.

The second largest use is in functional fluids such as de-icers and anti-freeze. MPG is also used in plasticizers, hydraulic brake fluids, cosmetics and animal foodstuffs.

More recent innovations include using the glycol as the base liquid in electronic cigarettes. However, this has been controversial. Many European MPG producers, as represented by Cefic, do not support the sale of MPG to the electronic cigarette market due to “unknown” health effects stemming from inhalation of the chemical.

The European Commission is currently conducting a safety study, which is due to be completed in May 2016. However, there are currently no indications producers will change their position on supplying into this end-market.

SUPPLY/DEMAND

Demand for UPR is typically seasonal, beginning in the second quarter and carrying on into the third. While de-icing demand is largely dependent on weather conditions, traditionally orders are expected to come in towards the end of the fourth quarter and during a large part of the first quarter. In the 2014/2015 winter, however, de-icing demand was muted in both quarters as temperatures in Europe were higher than in recent years.

Structurally, the European MPG market went from slight oversupply to fluctuating tightness, mainly due to an explosion that damaged Shell’s upstream propylene oxide/styrene monomer (PO/SM) unit in Moerdijk, the Netherlands, in June 2014.

The Moerdijk unit produced 250,000 tonnes/year of PO, the feedstock used to make MPG, which was roughly 10% of all European production. Since the explosion, there have been other upstream production issues such as cracker outages that have had a knock-on effect downstream.

Shell’s cracker in Moerdijk was set to restart in early July, and the new PO/SM unit between December 2015 and March 2016.

PRICES

In the aftermath of the 2014 explosion, MPG prices soared to near record levels. At their peak, average spot prices reached a high of €1,510/tonne free delivered (FD) northwest Europe (NWE). The all-time high average price was reached in early 2011, when an unusually cold winter storm created a temporary supply shortage on the continent.

Subsequently, prices began to fall as de-icing demand was lower than projected in the winter season, and availability began to rise. This was the second consecutive winter season where the market was significantly below expectation as a result of milder weather conditions.

In the second quarter of 2015, prices began a steady uptick as upstream conditions worsened and seasonal demand for UPR began to rise.

TECHNOLOGY

MPG industrial grade (MGPI) is produced by the hydration of PO, and the reaction also produces dipropylene glycol (DPG), tripropylene glycol and a small quantity of higher glycols. MPG US pharmaceutical grade (MPG USP) has the same molecular structure as MPGI but stricter handling and transportation requirements.

OUTLOOK

The outlook for MPG in Europe remains fundamentally altered by the Moerdijk incident. Prior to the explosion, the market was structurally oversupplied for a lengthy period and prices had been steadily falling since reaching record levels in early 2011.

With several crackers going off line due to planned and unplanned shutdowns, it remains unclear how this will affect downstream products in the future. However, it stands to reason that with PO already scarce due to the Moerdijk incident, any shortage in its own feedstock propylene is likely to exacerbate the shortfall.

Producers have also pointed to uncertainty surrounding the euro, particularly in light of the Greece crisis. On the one hand, Greece’s potential exit from the euro could precipitate a continent-wide slowdown in spending amid economic uncertainty. Conversely, a weakening euro could boost export opportunities for European MPG which is already competitive compared to other regions.

Sellers are expecting MPG prices to rise further, in keeping with the trend in Q2 2015, particularly if propylene contract prices rise again.

MPG buyers and traders – particularly those not involved in the UPR sector – are looking for price reductions going forward as they see demand as weak and no severe shortage of product, despite production outages. One trader also added that crackers are slowly coming back online. However, it conceded this would not necessarily translate into more MPG available.

At this stage, the outlook is unclear and depends on a multitude of factors in the MPG, PO and propylene markets. Demand for MPG in the second half of 2015 will also be a factor given that de-icing demand has been limited in the last two winter cycles.