Faced with three major challenges, the future of the global polypropylene market in the second half of the year is uncertain

Market analysts said that the global polypropylene (PP) market in 2021 may be mixed. Among them, the factors that supported the PP market price in the first half of the year, such as healthy downstream demand and tight global supply, are expected to continue into the second half of the year, but the upcoming hurricane season in the United States, the commissioning of new production capacity in Asia and the continuing logistics problems in Europe may Will weaken these favorable factors. In addition, the new wave of the spread of the new crown pneumonia epidemic in Asia has also weakened the expectations of future improvement in PP demand in the region.

Asia

The impact of the epidemic suppresses downstream demand

The outlook for the Asian PP market in the second half of this year is mixed. The good news is the strong demand in the downstream medical and packaging applications, and the worry is the increase in supply, the new crown pneumonia outbreak and the continuing problems of the container transportation industry.

From June to the end of this year, Asia and the Middle East will add about 7.04 million tons/year of PP production capacity. These new capacity include new production capacity and resumed production capacity, of which China accounts for 4.3 million tons/year. However, market analysts said that there are uncertainties in the actual progress of some PP expansion projects in Asia and the Middle East. Given the potential delays, the impact of these projects on the supply in the fourth quarter of 2021 may continue until 2022.

Sources said that during the global PP shortage earlier this year, Chinese producers proved the feasibility of exporting PP, which helped increase the export channels and market acceptance of price-competitive Chinese PP. Although it is not common for China's PP export arbitrage window to remain open for a long time (February to April this year), as the pace of capacity expansion accelerates, Chinese suppliers may continue to explore export opportunities, especially homopolymer PP.

Although demand from medical, sanitation and packaging-related applications continues to be strong, the advancement of vaccination programs and the recovery of some economic sectors will help PP demand growth. However, in Asia, especially India, which is the second largest demand center in Asia, after the new wave of new crown virus outbreak, the uncertainty of PP downstream demand is increasing.

United States

The hurricane season is approaching, and market prices will remain firm

In the second half of 2021, the US PP market is expected to face price increases stimulated by key factors such as healthy demand, tight supply and the upcoming hurricane season. U.S. PP suppliers have announced a price increase of 8 cents/lb (US$176/ton) in June. In addition, the price of U.S. PP may rise further, stimulated by the rebound in raw material propylene prices.

Platts Energy Information's PP price in Houston based on FAS (Free Shipping Trade) has risen sharply by US$783/ton since January 4 this year, an increase of 53%. The benchmark price on January 4 was US$1466/ton. The reason is that the winter storm that swept across Texas in mid-February closed many PP production plants, exacerbating already tight supplies. According to data from Platts Energy Information, FAS Houston’s PP benchmark price reached an all-time high of US$2,734 per ton on March 10 this year.

Market participants said that before the winter storm in mid-February this year, the U.S. PP industry had been affected by two hurricanes in August and October 2020. These two hurricanes affected U.S. PP factories and led to a decline in production. With the advent of this year's hurricane season, U.S. PP market participants may pay close attention to the U.S. Gulf of Mexico while carefully managing inventory to avoid further supply erosion.

Europe

Global container shortage creates uncertainty

As the global container shortage limits imports from Asia, the supply of PP in Europe is expected to face unfavorable factors. However, after large-scale vaccination in continental Europe, and with the lifting of restrictions related to the new coronavirus epidemic and changes in consumer behavior, new demands may emerge.

In the first half of 2021, due to the dual factors of supply shortage and healthy demand, the European PP market price hit a record high. The spot price of PP homopolymer in Northwestern Europe rose by 83%, reaching a peak of 960 Euros/ton in April. Market participants agreed that European PP prices may peak in the first half of the year and may be revised downwards in the future.

As for the rest of this year, the European PP market will need to resolve the global container shortage to balance the market, which has caused delays in the supply chain and additional logistics costs in the first half of the year.

PP producers and processors will seek to use the traditional summer off-season to increase PP inventory levels in preparation for the expected rebound in demand in the second half of the year.

The relaxation of restrictions on the new crown pneumonia epidemic in Europe is also expected to inject new PP demand into the service sector, and PP demand in the packaging sector will continue to maintain the strong momentum during the strict control of the epidemic. However, in view of the uncertainty of the extent of the recovery of European car sales, the outlook for PP demand in the automotive industry is still unclear.