The North American polypropylene market is as of mid-2023 marked by contracting demand as some consumers have reacted to volatile prices not just so far this year but since 2021, a time of high margins when some producers boasted about earnings above peers as analysts alerted about the need for more information to help companies plan and take better decisions.

Straws are typically made of polypropylene Image courtesy of Hans, Pixabay

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“It´s just not been a great demand year for trying to sell spot pounds into the market. Pricing has been very aggressive,” a market source in the North American polypropylene market said describing a 2023 market that is in sharp contrast to 2021 and first half 2022.

“First half last year demand was very strong. But just about this time last year customers started to realize that a lot of the forecast they had been given weren´t holding up. Orders didn´t appear to come to fruition as everybody had expected,” the source said.

“So, at about this time last year to the end of the year, it was a mad scramble to get rid of inventory,” added the source, that requested for its name and company to be withheld.

The situation has been further complicated for the North American polypropylene market for the rest of 2023 and beyond because later this year and next year there will be new capacity added, he said. And the demand just to absorb existing capacity isn´t there, the source added.

10% estimated demand reduction

In the second half of 2022 polypropylene and polyethylene markets faced a much different demand environment than in the first half of that year. This was after stores cut product inventories, including goods that contained polypropylene or that used polypropylene for shipping.

“So far this year, the first half of the year (2023) felt more like the second half of the year of last year,” the source said.

There are certain end markets for products that use polypropylene “that seem to be doing ok but there is a lot of other markets that aren´t seeing it. This has left us in a spot where demand is probably down about 10% for this year, to the first half of the year. Pretty shocking when you consider that you have a new plant Heartland coming into the market, you got a new plant with Exxon in the market,” the source said.

More new supply

Heartland is a complex that includes a PDH (propane dehydrogenator) to make propylene from propane with an adjacent polypropylene plant owned by InterPipeline in Alberta, Canada with 525,000 tonnes per year of polypropylene capacity set to fully start up this year. ExxonMobil recently completed an expansion in Louisiana, the source said describing new supply. 

There could be other additions of polypropylene installed capacity.

“You got a de-bottleneck coming from Invista in the fourth quarter of this year. You got another Formosa plant coming up in the first quarter next year. So just when you need demand to kick in strongly the market is not only not getting it, demand is retracting. It´s going backwards,” the source added.

“Operating rates have been barely above 70% so far this year, very very anemic,” the source said.

“We saw a run-up in PGP prices in the first quarter, very unexpected, kind of unexplainable. Really hard to understand how that translated into a 26 cent run-up in prices,” the source said. PGP (polymer grade propylene) is polymerized into polypropylene.

“The price matters and when it goes up 26 cents (per pound) it does not help demand. Customers have a hard time, they really do not know how to pass it all along. It creates a lot of problems,” the source said.

More on PP prices

“At the end of last year we would see polypropylene prices in the mid 50s (cents per pound) and again we got into the situation with PGP that went way up 26 cents, over the first three months of the year. So, polypropylene prices went up into the high 70s, low 80s cents per pound around March, April and that was very difficult for the market to absorb and now, all of a sudden, they are coming back down again and are approaching the mid 50s number again,” the source said in late June 2023.

“The outlook for the prices should be downward pressure. Supply is very strong,” the source said.

“Invista has a debottleneck coming on in the fourth quarter of this year” that may add 100 million pounds per year, the source estimated.

“This is a supply capacity now probably in the 700 million range to 800 million so they are adding about 10% more” in Texas.

As for Formosa, “they got a new plant coming in in the first quarter of next year. Its about 525 million pounds brand new capacity,” the source added. That information is not available in Formosa´s website and it was not possible to confirm independently.

“So that is a new line and again that will come in supposedly in the first quarter of next year,” the source added.

Can exports increase?

North American producers will have to export their way out of the coming glut, he said.

“Realistically we need to see 150 million to 200 million pounds per month of polypropylene exported. We are nowhere near those numbers. We are less than half of that,” the source said.

“They really need to be able to take out about 15% of the market every single month. It´s about 15% of the capacity, 150 million pounds per month or so,” he said.

In 2021 “prices were very high during that time. Polypropylene was over a dollar. Think there is a lot of demand destruction that had happened already then,” the source said.

Back then Braskem, North America´s top polypropylene producer and currently being audited by potential buyer Unipar Carbocloro, said its profitability was above that of its peers in the U.S. and in early 2022 Braskem officials told investors and analysts that they expected a repeat of 2021 spreads, before meeting disappointment shortly after.

Analysts said around that time that more transparency and information on polypropylene supply and planned capacity may help avoid volatility and benefit both consumers and producers.

By Renzo Pipoli