Global PP tightness to persist

19 April 2018 18:08 Source:ICIS Chemical Business

Polypropylene (PP) prices have been subject to high volatility in the early months of the year, especially due to the high swings in crude oil quotations. In Europe, higher propylene prices are expected to result in a rise in the PP domestic price in April, following a March PP price of €1,376, when sellers had no option but to transfer the monthly monomer decrease down to their customers. PP prices are predicted to continue to rise in May before falling back in June – again, following the expected trend in propylene prices. Supply and demand are currently balanced for both PP and propylene. Although PP buyers are understood to be well stocked, supply is not abundant, especially due to the ongoing cracker turnaround season.

PP prices

Looking ahead to the rest of 2018, sellers in Europe do not expect to see a significant rise in PP imports, which means that the market is unlikely to be oversupplied. The global balance between supply and demand outlines a positive outlook for producers in terms of margins, and also in Europe. Standalone producers’ margins in the region are expected to increase particularly from September, with the spread between propylene and PP forecast to widen during the second turnaround season in the autumn. Future investments in new propylene and PP capacity in Europe are being considered, and a few are firmly planned, such as a propane dehydrogenation (PDH)/PP integrated project in Poland. However, no new PP capacity is expected to be onstream in the region before 2022-2023, which indicates a growing prospective importance of imports for European processors.

CHINA SLOWDOWN HITS DEMAND

Chinese importers are said to remain cautious as a result of fragile downstream demand and price cuts in overseas markets. Asian PP markets remain weak following the Lunar New Year holidays, which ended on 21 February. The widely anticipated bounce-back in demand has not happened. One reason why many market participants had thought pricing would be stronger is that this is normally a peak demand season in China and southeast Asia. Second, there are several maintenance shutdowns in both regions. Instead, prices have edged down, as a result of unexpectedly high domestic inventory levels in China. China’s inventories are high because of a gradual slowdown taking place in the Chinese economy.

ICIS expects lower average PP prices in northeast Asia and southeast Asia in April and then higher prices in May and June. Three factors are expected to drive prices higher in May and June:

  • Firstly, the winter clean-air campaign has come to an end. This was the campaign in 28 northern Chinese cities to improve air quality during the winter months. This led to the shutdown of a large percentage of these cities’ manufacturing capacity, including smaller-scale plastic processors. Some of these processors have come back on-stream, while others remain off line because of longer term efforts to reduce air pollution. Closures of some fabricators will be permanent as China attempts to both reduce pollution and improve the economies of scale of all of its manufacturing industries.

  • Secondly, PP demand will pick up ahead of the Labour Day public holiday on 1 May. June is a strong month for economic activity in general as a result of internet sales festivals held by Alibaba and JD.com.

  • Thirdly, there has been a reduction in imports of uncleaned and unsorted scrap plastic (see box). This is also expected to provide support to demand and pricing in the coming months.

In the US, the homopolymer injection grade contract PP price is forecast to remain flat or rise slightly in April, after settling at 67 cents/lb in March, despite feedstock propylene supply issues easing amid strengthened production by new and restarted capacity.

Prices are expected to remain stable in May, before a seasonal dip in June. North American PP consumption is forecast to increase in Q2 as net imports and production ramp up.

The US PP market is expected to remain a net exporter, despite growing demand – even as the price spread between the US and China remains broad, making imports more attractive.”

Looking at oil prices, the overall outlook remains unchanged. Bullish factors, including the threat of new sanctions against Iran and a possible trade war between the US and China, are expected to result in slightly higher prices in April compared with March.

The Brent oil price averaged $65.8/bbl in March, relatively flat compared with February. A softening in prices is expected throughout the second half of the year, mainly as a result of increasing US shale production, which will challenge the global crude oil balance. Similar trends are expected for naphtha prices. Naphtha demand from the petrochemicals industry is lowering as operators are cracking more LPG in Europe at the expense of naphtha.

China used to be the world’s biggest dumping ground for uncleaned, unsorted used plastic, especially from western countries. Since January, regulations have been introduced to severely restrict these imports. The object of the ban is to protect the health of coastal towns that had been processing centres for this trade.Imports of unsorted and uncleaned PP are expected to be 964,000 tonnes lower in 2018 compared with 2017.

Because PP imported this way is highly polluted, 30% of imports ends up in finished products. The rest has to be either incinerated or buried in landfills. ICIS estimates that the scrap plastics ban will boost China’s consumption of virgin PP resins by 1% compared with our original estimate for 2018. This will amount to 272,000 tonnes of extra demand, leaving this year’s virgin PP consumption at 27.5m tonnes.

ICIS PRICE FORECAST REPORTS

The authors contribute to the ICIS price forecasting report. Fabrizio Galie and Lorenzo Meazza (Vergiate, Italy) are authors of PP and polyethylene (PE) Europe price forecast reports. Paolo Scafetta (Vergiate, Italy) writes raw materials/olefins forecasts. John Richardson (Perth, Australia) is author of PP and PE Asia price forecast reports. James Ray and Stephanie Kirby (Houston, US) are authors of PP and PE US price forecast reports.

Find out more about how price forecasts can help you at www.icis.com/priceforecast

By Fabrizio Galie, Lorenzo Meazza, Paoli Scafetta, John Richardson, James Ray, Stephanie Kirby