OUTLOOK '18: PE imports top 2018 Europe agenda, PP balanced

22 December 2017 13:00 Source:ICIS News

LONDON (ICIS)--As 2017 draws to a close, attention in the European polymers markets turns to 2018, which is expected to be a year when price movements in polyethylene (PE) and polypropylene (PP) could diverge significantly.

Photo credit: Dinendra Haria/REX/Shutterstock

In recent years, naphtha-based PE and PP have mostly moved in line with each other. New ethane-based PE production, mainly from North America, could change this.

It is not yet clear when PE imports from new North American (as well as Indian) capacities will start to come into Europe in substantial volumes.

Recent/upcoming North American new PE plants

Company Capacity Grades Location Start-up
Braskem Idesa 1.05m tonnes HDPE Veracruz state, Mexico Started 2016
Sasol/INEOS 470,000 tonnes HDPE La Porte, Texas, US Nov 2017
NOVA Chemical 454,000 tonnes LLDPE Joffre, Alberta, Canada Started 2016
Braskem not specified UHMWPE La Porte, Texas, US Started 2016
ExxonMobil 1.3m tonnes PE (premium) Mont Belvieu, Texas, US In start-up phase Q4 2017
Chevron Phillips 1.0m tonnes HDPE, LLDPE, other Sweeny, Texas, US Started H2 2017
Dow Chemical 750,000 tonnes PE (high-value), LDPE Freeport, Texas, US Started 2017
Sasol 470,000 tonnes LLDPE Lake Charles, Louisiana, US 2018
Sasol 420,000 tonnes LDPE Lake Charles, Louisiana, US 2019
Formosa Plastics 567,000 tonnes LDPE Point Comfort, Texas, US 2018
Formosa Plastics 525,000 tonnes HDPE Point Comfort, Texas, US 2018

Recent/upcoming Indian new PE, PP plants

Company Capacity Grades Location
OpAl 340,000 tonnes HDPE Dahej
OpAl 720,000 tonnes LLDPE/HDPE swing Dahej
OpAl 340,000 tonnes PP Dahej
Reliance 550,000 tonnes LLDPE/HDPE swing Jamnagar
Reliance 400,000 tonnes LDPE Jamnagar

Low PE prices in global terms in Europe are expected to delay the arrival of imports, but a certain amount will be inevitable in 2018 – and these cargoes are expected to have an impact on pricing.

For PP, the situation is expected to be different. There is very little new PP supply due, compared with PE, and a new environmental push in China could affect the amount of planned PP start-ups.

China has steadily increased the intensity of its war against pollution over the past three years, especially the war against pollution generated by burning coal – and some of the projected PP plants are based on a coal-to-olefins process.

In 2018, no oversupply of propylene (and hence PP) is expected – in fact, some European producers expect propylene to be tight throughout 2018. Others expect a more balanced picture, but there are few sources that expect a long propylene market in 2018.

Three propane dehydrogenation (PDH) units planned for Europe are not due before the early 2020s, and while these propylene start-ups are also expected to bring some new PP output, little is expected before then.

This scenario leaves PP producers in a far more relaxed position than their PE counterparts.

The new year is beginning with the spread between monomers and polymers at its lowest point since March/April 2015.

At that point, the market was on the brink of a massive upturn, brought about by a sudden return of demand after a period of stagnant buying just as many producers had begun to export strongly. This led to a sudden tightness that was exacerbated by a series of force majeures on both polymers and at the cracker level, as flat-out production led to plant outages.

Nobody excepts this scenario to be replicated in 2018, in spite of the strong exporting of ethylene at the end of the year, but many sources – both buyers and sellers – are gearing up for a potential price hike in January, before the arrival of any significant quantity of imports from new plants.

With the reduced monomer/polymer spread in December – and a lack of significant import volumes, as European prices are low – sources said Q1 could see a successful hike.

Other sources questioned whether such a move could be possible in January.

“In PP there is no tightness, but no excess of supply,” said one large buyer. “But in PE there is some length. They have a tough job, but they might manage.”

The lack of imports in some PE grades could lead to a successful hike next month, however. Linear low density polyethylene (LLDPE) C4 (butene based) is mostly imported into Europe, and Europe is now a net importer of some high density polyethylene (HDPE) grades.

Several players have questioned the validity of some price hikes in 2017, particularly in the PE market, as prices have risen simply in line with monomer, and not because supply was tight. The trend clearly changed in November, when ethylene rose by €30/tonne, and PE prices remained flat.

In short, the outlook for PE is that fresh imports will arrive to disturb the balance of the European market, and it is just a question of timing; while in PP, a balanced market is likely to support sellers.

PE and PP are used in packaging and the manufacture of household goods. PE is also used in agriculture, and PP in the automotive industry.

By Linda Naylor