Global PP Market Faces Multiple Challenges

Recently, market participants forecasted that the global polypropylene (PP) market supply and demand fundamentals in the second half of 2022 will be challenged on multiple fronts, mainly including the COVID-19 pneumonia outbreak in Asia, the start of the hurricane season in the Americas, and the Russia-Ukraine conflict. In addition, the commissioning of new production capacity in Asia may also affect the PP market pattern.

Asia PP oversupply concerns

Market participants from S&P Global said that the oversupply of polypropylene resin in the Asian market will continue to expand capacity in the second half of 2022 and beyond, as well as the epidemic is still affecting demand. The Asian PP market may face challenges. For the East Asian market, S&P Global expects that a total of 3.8 million tons of new PP capacity will be commissioned in East Asia in the second half of this year, with an additional 7.55 million tons of capacity to be added in 2023. Market sources pointed out that the reliability of capacity commissioning is in doubt as several production plants have been delayed due to epidemic restrictions amid ongoing port congestion in the region. East Asian traders will remain bullish on export opportunities to South Asia and South America if oil prices remain firm, the sources said. Among them, the Chinese PP industry will change the global supply pattern in the short to medium term, and the pace may be faster than expected. Given that Singapore has no expansion plans this year, China may eventually replace Singapore as the third largest PP exporter in Asia and the Middle East.

Southeast Asian PP markets will also continue to be oversupplied in the second half of the year, as purchasing power remains weak after the epidemic. And inflation will also lead to lower consumer purchasing power, making it difficult for PP end-product manufacturers to pass on additional costs to consumers. PP price pressure in Southeast Asia is expected to persist. In addition, competitive intra-regional pricing, lower-priced exports from outside, and a rebound in project loadings in the region will affect Southeast Asian PP prices. On the capacity side, Statoil's PRefchem project 450,000 tons/year PP project is scheduled to restart in the second half of the year; while Vietnam's Long Son petrochemical plant, which includes a set of 400,000 tons/year PP plants, is also scheduled to come online in the first quarter of 2023. S&P Global noted that Southeast Asia will seek more export opportunities outside of Southeast Asia due to weak demand, including to regions such as Europe, South America and South Asia, where export earnings are much higher.

North America concerned about falling propylene prices

The U.S. PP market in the first half of the year was largely plagued by ongoing inland logistics issues, lack of spot offers and uncompetitive export pricing, sources said. The U.S. domestic market and export PP will face uncertainty in the second half of the year, with market participants also eyeing the possible impact of the region's hurricane season. Meanwhile, while steady U.S. demand has absorbed most PP resins and kept contract prices stable, market participants are still discussing price adjustments as polymer-grade propylene spot prices decline and resin buyers are pushing for price reductions. S&P Global data show U.S. PP resin spot export prices rose $507/mt, or more than 27%, to $1,852/mt from Jan. 3 to May 18, and more than 5% since the beginning of the second quarter. U.S. PP supply is expected to increase as the load factor of ExxonMobil's new 450,000 tons/year capacity at its integrated plant in Baton Rouge, Louisiana, ramps up by the end of this year. In addition, Canada's InterPipeline also plans to bring its 525,000 mt/year PP plant in Alberta into operation in mid-2022. Nevertheless, North American market participants remain cautious about the amount of supply increase. Due to lower external PP prices, the additional production in North America last year did not make the region more competitive with 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.

European PP market hit by upstream

For the European PP market, S&P Global said that upstream price pressure appears to continue to trigger uncertainty in the European PP market in the second half of the year. Market participants are generally concerned that downstream demand is still likely to be weak, with weak demand from the automotive and personal protective equipment industries. And continued price increases in the recycled PP market could favor PP resin demand offers, as buyers tend to shift to cheaper virgin resin materials. The market is more concerned about rising upstream costs than downstream. In Europe, volatility in contract prices for key feedstock propylene pushed up PP resin prices throughout the first half of the year, while companies struggled to pass on higher feedstock prices to downstream. In addition, logistical difficulties and high energy prices were also factors driving up prices. Market participants said the Russia-Ukraine conflict will continue to be a key factor in the movement of the European PP market. In the first half of the year, there was no Russian PP resin material supply in the European market, giving some room to traders from other countries. In addition, due to economic issues, S&P Global believes the Turkish PP market will continue to experience severe headwinds in the second half of the year.