Three major polypropylene production areas will face challenges in 2021

The three major global polypropylene production regions, Asia, the United States and Europe, are facing obvious challenges in 2021. The epidemic may still cause production shutdowns, which will threaten the seasonal increase brought by traders' replenishment of inventories in the first quarter.

Market participants are paying close attention to shipping, production and vaccine-related trends.

New projects in Asia started, with sufficient supply

Participants in the Asian polypropylene market hold a bearish view. It is expected that when new projects start in the first half of 2021, the supply of PP will be overwhelming. However, some believe that demand and economic recovery may provide a lower price limit.

It is expected that from the end of 2020 to the first half of 2021, Asia and the Middle East will add 5.95 million tons/year of PP production capacity, mainly from China, including the restart of a 900,000 tons/year production line in Malaysia.

This does not include the three Chinese PP factories (totaling 1.55 million tons/year) that started in the third quarter of 2020, which are in a stable and growing stage.

Despite this, some sources said that the impact of supply expansion on the Asian PP market in the first half of 2021 will depend on the actual progress of these projects.

However, the source said that the supply tensions in Southeast Asia and India in November should ease by 2021.

PP demand in Asia depends on the evolution of the epidemic, vaccination plans and economic recovery.

S&P Global Platts Analytics predicts that as the application of vaccines and other health measures in the fight against the new crown epidemic begins to emerge, PP demand in Asia will rebound by 6% in 2021 after falling in 2020.

Even if the vaccine is postponed, the auto industry in some regions is expected to improve, because it is expected that after the epidemic, people will be more inclined to use personal vehicles instead of public transportation.

In addition, limited container supply and high freight costs may support Asian PP in early 2021.

The U.S. will enter 2021 with the issue unresolved

After the U.S. experienced a turbulent 2020 resin supply shortage, domestic and export PP resins will face supply uncertainty in 2021. In the second half of 2020, two hurricanes landed on the Gulf Coast of the United States, affecting the PP business in Louisiana.

At the same time, in the face of continued strong demand, Blasco's US branch established a new 450,000-ton/year PP plant in Laporte, Texas, which was put into operation on September 10.

Driven by the medical and health departments, the strong domestic demand in the United States will continue to strain fiber-grade and injection-grade grades throughout 2020, and this situation is expected to continue in early 2021.

However, participants in the export market have given up the higher-priced U.S. pellets and are looking for supplies around the world to meet customer needs.

Although prices have remained strong for most of the second half of 2020, and spot prices have caught up with the contract level, such pricing is considered "not feasible" from the United States to traditional import regions including Latin America. 

S&P Global Platts data shows that from May 15 to December 15, the export price of spot homopolymer PP rose by US$573 from the 2020 low of US$739/ton FAS Houston, an increase of about 78%.

In addition, the shortage of containers, the congestion of American ports and the increase in freight volume to the Americas will pose challenges to market participants.

Europe hopes that economic recovery will last

The second wave of COVID-19 is likely to continue to affect European PP demand in early 2021, although market participants expect that demand will improve with the end of national restrictions.

The level of PP consumption in Europe in 2021 will largely depend on the success of the vaccination program. Supported by strong demand for health and medical applications, demand throughout the first half of the year is expected to improve, while processors believe that demand in the food packaging sector remains stable.

In the second half of 2020, the auto industry experienced a stronger-than-expected recovery supported by potential demand. In 2021, the consumption of PP grades used in automotive and construction applications should improve, but the impact of the European economic recession continues to deepen, still posing a threat to car sales and the development of new construction projects, which may limit the extent of recovery .

In the last few months of 2020, as sellers considered that the net rebates offered were more attractive, they sought to supply the export market instead of the European spot market, and the supply of some PP grades was tightened. Some planned shutdowns and maintenance were postponed from the beginning of the year to the fourth quarter of 2020, which also reduced market supply.

Participants expect that PP cargo will continue to flow to export destinations in early 2021, which may limit spot supply and prompt some European buyers to consider increasing the number of contracts in 2021.