As affordability reduces, polypropylene may be losing competitive edge

07-Apr-10

Ten years ago, polypropylene was a cheap product vs. polystyrene, PET and polyethylene. Today, the affordability of polypropylene as an affordable resin seems to be ending. If that happens, PP exports from North America will decline, as per PlasticsNews. This somewhat gloomy outlook was forecast by market analysts from Chemical Market Associates Inc. and DeWitt & Co. at a recent conference. The crux of the problem is that with low-priced natural gas-based feedstock being used by petrochemical firms, less propylene is being produced. As a result, tight propylene supplies are pushing up prices and taking average North American selling prices for PP along with them. Prices for most PP grades are up more than 50% since mid-2008 with no signs of coming down soon. This lack of competitive pricing will drain exports, which enjoyed an excellent year in 2009. North American exports to China surged 340% yoy in 2009, allowing regional PP makers to keep their lines running at good rates and to pass on price increases to their customers. During the course of the year, monthly exports peaked near 180 mln lbs to less than 50 mln by the start of 2010. With propylene tightness becoming a structural part of the PP market, these high prices might not be temporary. The first [PP] exports to be impacted will be commodity grades like raffia, fiber, injection molding grades. Also domestic demand may not see the peak of the mid-2000s for a while. North America’s share of global PP demand is expected to drop from 17% in 2007 to 13% in 2010 as China could be sourcing from Asian suppliers from the 9 bln lbs of PP capacity to come on steam until 2010. That also would reduce opportunities for exports from North America and Western Europe. Amid all this gloom, North American domestic PP demand is expected to rebound 4-5% in 2010, led by “optimistic new applications” such as high-clarity thermoformed food packaging and foam applications. Improved construction and automotive spending also should help PP prospects. Low operating rates at around 80-83% in North America could lead to more plant closings and consolidations, despite removal in recent years of over 2 bln lbs.