The Global PP Market Faces Multiple Challenges

Recently, market participants forecast that the supply and demand fundamentals of the global polypropylene (PP) market will face multiple challenges in the second half of 2022, mainly including the COVID-19 pandemic in Asia, the start of the hurricane season in the Americas, and the Russia-Ukraine conflict. In addition, new capacity coming on stream in Asia could also affect the PP market landscape.

There are concerns about excess PP supply in Asia

Market participants at S&P Global said capacity expansion will continue in the second half of 2022 and beyond due to an oversupply of polypropylene resin in the Asian market, and the pandemic is still affecting demand. Asia's PP market may face challenges.

For East Asia, S&P Global expects a total of 3.8m tonnes of new PP capacity to come online in the second half of this year, with a further 7.55m tonnes to be added in 2023. Market sources said there were doubts about the reliability of production capacity as several production plants delayed due to pandemic restrictions amid continued 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, sources said. Among them, China's PP industry will change the global supply pattern in the short term, which may be faster than expected. With Singapore not planning to expand capacity this year, China could eventually overtake Singapore as the third-largest PP exporter in Asia and the Middle East.

The PP market in Southeast Asia will also continue to be oversupplied in the second half as purchasing power remains weak after the pandemic. Moreover, inflation will also lead to reduced purchasing power of consumers, and PP end product manufacturers can hardly pass on the extra cost to consumers. PP price pressure in Southeast Asia is expected to persist. In addition, PP prices in Southeast Asia will be affected by competitive regional pricing, cheaper exports from outside, and a rebound in project load rates in the region. In terms of production capacity, the 450,000 tons/year PP project of PRefchem Project of Petro Prefchem is scheduled to be restarted in the second half of the year. Vietnam's Longsan Petrochemical plant, which includes a 400,000tPA PP plant, is also scheduled to start production in the first quarter of 2023. Southeast Asia, with weak demand, will look more for export opportunities outside the region, including to regions such as Europe, South America and South Asia, where exports are much more profitable, S&P Global said.

North America focused on falling propylene prices

The PP market in the US in the first half was largely plagued by persistent inland logistics issues, lack of spot quotes and uncompetitive export pricing, sources said. The domestic market and exports of PP will face uncertainty in the second half of the year, and market participants are also watching the possible impact of the hurricane season in the region. Meanwhile, while stable US demand has absorbed much of the PP resin and kept contract prices stable, market participants are still discussing price adjustments as spot prices for polymer-grade propylene fall and resin buyers push for price cuts.

Us spot export prices for PP resin rose by $507 a tonne to $1,852 a tonne between January 3 and May 18, or more than 27 per cent, and more than 5 per cent since the start of the second quarter, according to S&P Global data. U.S. PP supply is expected to increase as ExxonMobil builds a new 450,000 TPA capacity at its Baton Rouge, Louisiana, complex by the end of the year. Inter Pipeline Canada also plans to bring its 525,000 mt/y PP unit into operation in Alberta by mid-2022.

Still, North American market participants remain cautious about the volume of supply increases. New production in North America last year did not make the region more competitive with traditional importing regions such as Latin America because of lower external PP prices. In the first half of this year, suppliers offered few spot quotes due to force majeure and multiple unit overhauls.

The European PP market was hit upstream

On the European PP market, S&P Global said upstream price pressures appear set to continue to cause uncertainty in the European PP market in the second half. There is widespread concern among market participants that downstream demand could remain tepid, with weak demand in the automotive and personal protective equipment sectors. The continuous rise in the market price of recycled PP may be good for PP resin demand, as buyers tend to switch to cheaper native resin materials. The market is more focused on rising upstream costs than downstream. In Europe, volatility in contract prices for propylene, a key feedstock, pushed up PP resin prices throughout the first half, as companies struggled to pass on feedstock price increases downstream. Logistical difficulties and high energy prices are also driving up prices.Market participants said the conflict between Russia and Ukraine would continue to be a key factor in PP market movements in Europe. In the first half of the year, there was no supply of Russian PP resin materials in the European market, providing some room for traders from other countries. In addition, S&P Global believes the Turkish PP market will continue to experience significant headwinds in the second half due to economic issues.