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North American PP market to see two startups, challenged demand in 2022

North American polypropylene producers won´t see this year a repeat of 2021, when stronger-than-expected demand as the pandemic eased after vaccines met extreme supply tightness. This year is different not just because of startups in Louisiana and Canada that will add resin but also because demand isn´t as strong.

“Pretending to maintain last year´s margins is hard considering we are in a pretty balanced market, with all this new capacity about to be added up, and taken to a market with a weakened demand environment,” said a market participant, speaking on the condition that his name be withheld. North American supply will soon increase by 10%, the source estimated.

Officials at Braskem, North America´s biggest polypropylene producer, said in May, during the first quarter 2022 earnings call, that they projected for 2022 spreads similar to those from last year.

Braskem, with five polypropylene plants in the U.S., all located in the northeast and in the Gulf Coast, is the biggest polypropylene producer in North America. Based in Sao Paulo, it is also the biggest petrochemical company in Latin America.

The global polypropylene market is worth about $87 B annually, according to a press release from Future Market Insights. BASF, Dupont, Eastman Chemical, Exxon Mobil, Formosa, INEOS, LyondellBasell, SABIC, Total, and Westlake Chemical are some other global polypropylene market participants.

10% added to annual North American supply

“Our information is that InterPipeline is set to start up in June, stop to check, and then probably start again with adjustments. They will be running in the second half of the year. Will only have homopolymer. Very limited product,” the source said.

InterPipeline´s propane de-hydrogenator and polypropylene complex near Edmonton, Alberta, set for completion in 2022 after four years of construction, has 525,000 tons of annual production capacity that will probably not be limited to a region like the U.S. Midwest but get sent everywhere, the source said.

There is also new polypropylene capacity coming online from ExxonMobil in Louisiana.

“The expectation is that this year ExxonMobil will start in Louisiana. They´ve been very quiet. It´s over 2.2 B pounds of capacity when combining Inter Pipeline and ExxonMobil,” the source said.

“Considering an annual market size of about 20 B pounds, give or take, you are adding 10% to the North American market supply,” it added.

The two plants will represent the first polypropylene capacity added to the North American market since Braskem started up a plant in Texas in September 2020.

2022 demand not as robust

Polypropylene producers enjoyed last year what some described as extraordinary margins.

“At some point this number had to reconcile and this year´s demand is not nearly as robust,” the source said. It appears 2022 does not have the same growth rates, it added.

“One cannot expect to continue with high margins indefinitely. The price of polypropylene has about doubled in the last two years already,” the source said.

During 2021 much of the justification for higher margins came from reported supply problems linked to weather events in February of that year, with Winter Storm Uri in the Gulf Coast, that coincided with a surge in demand. Hurricanes had also had some impact, particularly in 2020.

Buyers “paid more last year. They know why they did it. But they may not this year. There are differences this year in terms both of demand and domestic supply,” the source said.

20-billion-pound U.S. market

“We do in the U.S. about 1.5 B pounds per month worth of sales. That´s about 18 B pounds a year. If you add the imports last year it comes to about 20 billion pounds of supply,” the source said.

“The monomer propylene price is gone up quite a bit as well, close to double. So, on top of higher prices for feedstock, producers want additional margins and this is putting the market at an unsustainable level,” the source said.

For the polypropylene market, “up to this point it has been all about supply. Demand has been slightly better than supply,” it added.

“For a variety of reasons supply has been constrained,” the source said. In addition to force majeure situations linked to weather, there has also been some unexpected maintenance, the source added.

Currently the North American “market feels tighter than it realistically is,” the source said.

The biggest difference is that “demand isn´t really as robust as what it was last year,” the source added.  

$87-B global market

The global polypropylene market was estimated at $84 B in 2021, expanding to $87 B in 2022 and to $118 B by 2030, according to information published by Future Market Insights through Globe Newswire on March 28.

“Despite a bearish rally for polypropylene over the last three months, a more positive outlook for oil will pave the way for a brighter polypropylene settlements in the near term,” it said.

Polypropylene is the most consumed plastic in the auto industry. According to information in the website of Craftech Industries, an auto parts producer, just three plastic resins make up 66% of the total plastic used in a car with polypropylene representing 32%, polyurethane 17%, and PVC 16%.

New vehicle transaction prices were in March 2022 about 13% (or $5,247) higher than a year earlier, according to Kelley Blue Book data released in April.

Polypropylene is often found in medical protective clothing, masks as well as in the form of packaging material like mesh bags for fruits and vegetables. It is also used for carpeting, furniture or medical equipment. It´s often categorized as homopolymer or co-polymer.

North American polypropylene producers enjoyed high margins and profit in 2021 but in 2022 demand may feel the impact of higher prices.

North Americans are facing high prices for fuel and other items. Prices of basic necessities, including the food that often comes packed in some form of plastic resin material, have soared at a rate unseen for four decades.

For the year ended April 2022, the U.S. Consumer Price Index for All Urban Consumers increased 8.3%. Over that period, prices for food at home increased 10.8%, the largest 12-month percentage increase since the period ending November 1980, the U.S. Bureau of Labor Statistics reported on May 17.

(Reporting by Renzo Pipoli)

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