During the recent FPA Fall Executive Conference, Joel Morales, Jr., Senior Director, Polyolefins Americas, IHS Markit, provided an update on the polypropylene (PP) market, and IHS Markit wrote a follow-up report based on Joel’s presentation.
The report covers key issues that are expected to drive the evolution of the industry in the near future. IHS Markit’s recently updated economy and energy reports from IHS’s Economic (Global Insight) and Energy (CERA) groups are also included in the first few sections of the report.
The report focuses on key aspects of the PP industry including propylene feedstocks, PP markets, capacity and new planned projects, pricing trends, and expanded insight on economic and energy issues that directly impact the raw materials used in the flexible packaging industry.
Global economic growth is expected to gradually slow from 3.3% in 2017 to 3.2% this year, 3.1% in 2019, and 2.9% in 2020. The U.S. is getting a boost from fiscal stimulus and strengthening business investment in 2018–2019, but inflationary pressures and policy tightening will restrain growth in 2020–2021. Europe’s growth is slowing but remains above trend; and the risks include higher oil prices, political changes in Italy and Spain, and the financial crisis in Turkey. China’s growth is moderating because of excesses in industrial capacity and debt, as well as rising U.S./China trade friction. Asia’s other emerging markets are expected to sustain solid growth. Emerging markets that depend heavily on external finances are under stress; and Turkey, Argentina, and South Africa will experience recessions.
Global Polypropylene Market
The near-term supply of PP directly impacted by underwhelming production in 2017, and combined with improving demand, kept the PP supply/demand balanced. North American PP producers saw that sharp PP resin price increases quickly led to increased imports of PP resin, as well as imported finished goods like film and fiber. Heading into 2018, North American PP producers were more cautious about potentially losing business to international PP suppliers.
For 2018, PP demand has been better, while supply has been lower than expected; global polypropylene producers are benefiting with strong margins; there is no more concern from Asian oversupply, since the world needs Chinese production to meet growing demand; and Chinese production will be critical for PP supply and demand dynamics through the forecast period (2018-2022).
North American Polypropylene Market
In North America, there was poor production in 2018, with operating rates down 2.5% through August (versus same year to date period for 2017). PP producers reported Total Sales for North America were down 0.8% and Domestic Sales were flat through August year to date. The GTA (Global Trade Atlas) data through July 2018 showed that imports were up 42%, and exports were down 33%. Domestic margins (PP spread over propylene monomer price) will likely be capped near-term, possibly medium/long term due to the propylene supply and demand balance.
PP production suffered in 2018 due to many factors. There was an abnormally hard freeze in January that was extremely disruptive for production. Several unplanned outages in January and February resulted in low production. There were also several Force Majeures (FM) in 2018 at affected PP production. In August 2018, Total announced that it was removing its FM that was declared in June for impact copolymer products. In September 2018, LyondellBasell reported that it was working on debottlenecks at its production lines at Lake Charles, Louisiana, and both lines were down for a significant period of time. In early September, Phillips 66 declared FM due to an issue with propylene supply that significantly curtailed its September production. Phillips 66 was able to start up both lines by the end of September.
Overall, North American PP production in September will continue this trend for the rest of the year, with imports increasing to keep the PP market supplied without creating an oversupply situation. This may change towards the end of the year as PP production should improve as required propylene feedstocks become available. However, given the production issues year-to-date, it will likely be difficult for domestic PP producers to build enough PP inventory for the remainder of 2018 and the upward trend in PP imports will continue into 2019, and will put pressure on domestic PP resin prices.
For More Information
The full IHS Markit Polypropylene Report is available to FPA members in the “Members Only” section of the FPA website, www.flexpack.org.