Global polypropylene supply and demand variables increase steeply

 Market analysts predict that the global polypropylene industry will be challenged by a number of factors in the second half of the year, including the ongoing covid-19 epidemic, the arrival of the hurricane season, ongoing international conflicts, increased capacity supply and large regional pricing differences.

Asia mainly affected by ongoing epidemic and oversupply

The Asian polypropylene market is already oversupplied, and polypropylene capacity in China will continue to expand in the second half of the year and beyond. New commissioning capacity is expected to total 3.8 million tons/year in the second half of the year, with another 7.55 million tons/year to be added in 2023. Demand and logistics issues remain critical as China continues to adopt a dynamic zero-clearance prevention policy. Market sources revealed that the commissioning of several production plants in China had to be postponed due to port congestion logistics disruptions.

Since 2014, China has made efforts to promote self-sufficiency in chemicals and polymers. China's polypropylene industry is growing faster than expected and will change the global supply landscape. in 2020, China will export only 425,000 tons of polypropylene, barely competitive with major exporters in Asia and the Middle East. However, China's polypropylene exports surge to 1.4 million tons in 2021, surpassing even the feedstock-rich UAE to enter the ranks of major polypropylene exporters. According to Chinese customs data, annual polypropylene exports could rise to 1.7 million tons in 2022. China may replace Singapore as the third largest exporter of polypropylene in Asia and the Middle East, given that Singapore has no plans to expand its capacity this year.

With most new polypropylene capacity in China using state-of-the-art technology, world-class scale and access to more competitive feedstock, companies will boost exports by increasing capacity and commissioning new units. This, coupled with a declining RMB/USD exchange rate, will allow for greater returns on polypropylene exports. Meanwhile, China's polypropylene export destinations continue to expand. Vietnam is the top destination for China's polypropylene exports, but its share has fallen to 11% in the first five months of this year, down from 17% in 2021. They are followed by Bangladesh, Brazil, Guatemala, India, Mexico, Pakistan, Peru and Turkey. This indicates that China's polypropylene exports have gained a greater presence in South Asia and Central and South America. More critically, the average premium for Chinese exports of polypropylene has generally increased. Whereas the average premium for China's polypropylene exports to India was just $37 per ton for the 10-plus years from November 2002 to December 2020, when exports were not high, it quickly soared to $224 per ton from January 2021 to June 17, 2022. The same is true for China's exports to Pakistan, where the average premium for the 10-plus year period from November 2002 to December 2020 is $42/mt, while the 1.5-year average premium from January 2021 to June 17, 2022 increases to $251/mt. The average premium for China's polypropylene exports to Vietnam rose from an average of $27/mt in December 2010 to $106/mt from January 2021 to June 17, 2022.

The Southeast Asian polypropylene market is likely to remain oversupplied in the second half of the year. With purchasing power remaining weak after the epidemic, not only will consumers tighten their belts due to inflation, but end-product manufacturers will also have difficulty passing on additional costs to consumers due to inflation. Price pressures are expected to persist. Reasons for this include intra-regional pricing competition, low-priced product exports from China and a pickup in Asian polypropylene starts. Malaysia's Petronas 450,000 mt/ton polypropylene project is scheduled to restart in the second half of the year. Vietnam's Long Son petrochemical plant, which includes a 400,000 mt/y polypropylene unit, is scheduled to come online in the first quarter of 2023.

Market sources noted that producers are seeking export opportunities for polypropylene outside Southeast Asia due to weak demand. Market sources say that due to weak demand in Southeast Asia, producers are seeking export opportunities for polypropylene outside of Southeast Asia, including Europe, South America and South Asia.

North American prices not competitive enough

During the first half of the year, the U.S. polypropylene market was largely plagued by continued poor inland logistics, lack of spot offers and lack of competitive export pricing. The U.S. domestic market and polypropylene exports will continue to face some uncertainty in the second half of the year. Market participants are generally concerned about the potential impact of downtime due to the onset of the hurricane season in North America. Meanwhile, domestic demand in the U.S. is stable and market prices are largely stable. However, buyers are also expecting a price reduction for polypropylene resins as polymer-grade propylene spot prices continue to decline.

U.S. consulting firm S&P Global data show that from Jan. 3 to May 18 this year, U.S. polypropylene spot export prices reached $1,852 per ton, up more than 27 percent, compared with an increase of more than 5 percent since the second quarter. U.S. polypropylene supply is expected to increase before the end of the year as ExxonMobil's new 450,000 tons/year polypropylene capacity load factor in Baton Rouge, Louisiana, continues to rise. Separately, Canada's Pembina Pipeline plans to bring its 525,000 mt/yr polypropylene unit in Alberta into operation this year.

However, market participants are cautious. North American production was elevated last year, but polypropylene was purchased at lower prices around the world. U.S. manufacturers have not improved their competitiveness in traditional import regions such as Latin America. In the first half of the year, suppliers offered little in the way of spot offers due to force majeure and multiple unit maintenance.

International conflicts continue to be one of the key factors in the uncertainty of the European market. The war provided opportunities for traders and producers in Europe, a market source said. There was no Russian polypropylene supply in the European market throughout the first half of the year, and consumers were reluctant to approach Russian sellers. There is a high level of uncertainty in the European polypropylene market in the second half of the year. Market participants are generally concerned that downstream demand will remain difficult to boost due to weak demand from industries such as automotive and personal protective equipment. However, as recycled polypropylene prices continue to rise, buyers are inclined to shift to virgin resin materials.

In Turkey, the center of trade between Europe and Asia, demand for polypropylene was lacking in the first half of the year due to war, high inflation and a weak Turkish currency, and the slump remained difficult to reverse in the second half of the year.