Global propylene and polypropylene face oversupply

Industry insiders predict that the global propylene and polypropylene (PP) market will usher in new supply in 2023, intensifying the global market share competition and regional price competition. In this context, upstream propylene may be in trouble due to the low profit rate of downstream PP. Under the current high oil price background, enterprises that have the advantage of raw material cost will have a competitive advantage.

Asia is afraid of falling into surplus

In Asia, due to the high operating rate of upstream refineries and the reduction of downstream processing activities, the general oversupply of propylene and PP may continue until the first half of 2023. An insider said: "At the end of 2022, the PP inventory level in the Asian market was lower than that in 2021, but still significantly increased compared with previous years. However, the PP plant in the Middle East refineries is unlikely to reduce PP production in order to increase market share."

On the other hand, the recovery of the PP market in Southeast Asia depends on China. The regional market is hindered by the rising cost of living caused by the devaluation of the currency and the reduction of fuel, electricity and food subsidies in 2022. A source based in Southeast Asia said: "We expect that more PP goods will enter Southeast Asia from the Middle East, especially in the case of weak global demand. The Middle East has advantages in raw material costs, and local producers are not afraid of competition."

At the same time, due to the decline in the production profit margin, the spot propylene supply in South Korea will decline. The manufacturer Lichuan Naphtha Cracking Center (YNCC) will postpone the restart of its 450000 t/a # 1 cracking unit, and LG Chemical will close its 450000 t/a # 2 cracking unit in the second quarter of 2023.

Europe continues to be bearish

Due to weak demand and lack of market competitiveness, the bear market of European propylene market will continue in 2023. A trader said: "Everything is still under pressure, and this situation will continue."

Due to the supply shortage caused by the unplanned shutdown and strike of propane cracking unit, the price of propylene in Europe is rising from the historical low of 460.50 euros/ton set on September 13, 2022, but the spot activity is still sluggish due to the macroeconomic pressure of consumers. Market participants estimate that the weak demand fundamentals are expected to recover from the seasonal low in the first half of 2023, but inflation and the ongoing Russian-Uzbekistan conflict may prolong the weak period of the entire market.

The uncertainty and pessimism of the propylene market extend to the downstream PP market. Market participants expect that the unstable balance between strong production costs and weak demand will continue in 2023.

The United States may have support

Market participants expect that the price of the US propylene market may be supported in the first half of 2023, but the new demand for downstream PP is unlikely to exceed the new supply brought by the production of new capacity.

Due to the rising interest rate and high inflation sucking up the demand for downstream polypropylene, the price of polymer grade propylene in the US market fell by more than 60% from March to December 2022. PP prices fell by 56% in the same period, because the market demand for durable goods is still very small, and PP prices from Asia are more competitive than exports from the Gulf Coast of the United States.

Nevertheless, ExxonMobil's new 450000 t/a polypropylene plant in Baton Rouge, Louisiana has been put into operation in December 2022. A market source said: "The price of propylene in the United States has reached its lowest point in December 2022. The first quarter of 2023 will be flat or slightly higher, the second quarter is expected to rise, the third quarter is flat, and the fourth quarter is slightly higher."

The enterprise product partner company is building a 750000 t/a propane dehydrogenation unit in Texas, which is planned to be put into production in the second quarter of 2023. This will make the propane dehydrogenation capacity of the United States reach 3 million tons/year.