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Polypropylene will continue to face difficult years until 2013 |
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Global consumption of polypropylene in 2008 was 45.5 mln tons, down 1.4 mln tons from 2007, as per Townsend Solutions. With the global economy starting to recover in H2-2009, the polypropylene usage level will grow less than 1% in 2009 and finally reach 2007 usage levels sometime in 2010. Townsend forecasts global polypropylene usage growth will average 3.7% pa for the next five years. During this same 5-year period over 10 mln tons of new polypropylene capacity is expected to come on stream, according to supplier announcements. The additional production will result in a period of historically low capacity utilization levels of below 80% by 2012.
Over the past decade, China has emerged as the principal manufacturing and export location for low value plastic products in the world due to low manufacturing costs and significant government support. Rapid increase in downstream processing capacity additions, primarily geared towards export markets, will be the main driver of polypropylene demand in the future. With over 30% of the demand dependent on imports, China will continue to remain the largest importer of polypropylene in the world in spite of the many polypropylene capacity additions expected to come on-stream in the next few years. The Chinese polypropylene market size was US$14,439 mln in 2008 and is forecast to grow by more than 10%, accounting for 41% of the global polypropylene demand in 2020 as per global markets direct. Production of polypropylene in most countries will be unable to compete with the Middle East production as feedstock costs of the Middle East producers are 1/5th of the cost of feedstock available to Asian and European producers. The Middle Eastern countries, in their need to diversify from dependence on oil revenues, support the growth of petrochemical industries to add value to their exports and also to generate employment for local citizens. The Middle East region will see more than 3 million tons of polypropylene capacity additions in the next few years. Accounting for more than 50% of the global planned polypropylene capacity additions, the Middle East region will emerge as the largest exporter of polypropylene in the world.
The global growth rate of polypropylene has conventionally been above average at 7-8% pa due to its versatility and relatively low cost position versus other polymers. However, PP has started slipping from its competitive price position, losing out to other polymers as per ICIS. This is because of increased price of feedstock propylene on account of two reasons: Increased demand for propylene at a pace faster than supply resulting in the need for more expensive on-purpose technologies to supplement its production. Hence, propylene prices have increased in comparison to ethylene prices, eroding its previous price advantage. Also, since propylene prices are tied to oil prices that have been on the rise over the past few years.
As a result, PP has been losing its competitive price position to other polymers. According to US-based consultants CMAI, while PP prices still remain below parity with some of the other commodity polymers, the continuation of this trend may translate into lower than historic demand growth rates in the future. Before the 2008 crisis, CMAI predicted a strong global growth rate for PP of just under 6% pa in the 2007-2012 period. However, less of the growth was forecast to come from the substitution other polymers and more from increased demand in developing regions such as China and India. Concerns abound over the huge new capacities being added that will impact the PP industry. Most of the new projects are located in the Middle East and Asia, particularly China, as well as in India, Europe and America. North America is expected to lose its leadership position in the export markets while Europe could become a net importer. As producers with uncompetitive costs will have difficulty maintaining their export positions, it will pressurize prices in domestic markets and is likely to drive down profitability. USA faces challenges in the supply and price of propylene feedstock. Around half of the propylene used in petrochemicals in the US comes from fluid catalytic cracking (FCC) units which produce gasoline in refineries. However, propylene demand is growing faster than gasoline and so refineries may be unable to keep up with demand. In addition, as crude oil prices increase, the alkylation value of propylene increases and at some point it may become more attractive for the refinery operators to use the propylene to make alkylate for gasoline rather than petrochemicals. Western Europe is expected to become a net importer, while China is and will continue to be the largest consuming country of PP. About 11 new PP plants with a total capacity of 3.9 mln tpa was to come onstream in China in the 2008-2012 period, and many further projects are in the study or approval stages. This is likely to lead to a more balanced supply and demand scenario, impacting China�s imports of PP.
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