Market outlook: New PDH units may lead to US polypropylene resurgence
05 April 2013 16:37 [Source: ICB]
Proposed new propane dehydrogenation (PDH) units in the US may lead to a renaissance for this key polyolefin
In these times of wild propylene
volatility, when prices are just as apt to swing up by 15 cents/lb
($331/tonne, €255/tonne) one month as they are to swing back down by 20
cents/lb the next, it is hard to imagine a future golden age for any of
its derivatives - especially polypropylene (PP).
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PDH plants will fill the propylene supply gap created by cracking lighter feedstocks
Copyright: PetroLogistics
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Yet,
with recent announcements of eight PDH units to be built in the US over
the next three to five years (see table) many market participants are
banking on more pricing stability leading to a resurgence in demand for
the commodity. It cannot come too soon for many buyers.
Since
December 2012, US PP prices have followed feedstock propylene prices up
by 31%, but in March, prices fell by 6 cents/lb - tracking lower
propylene costs and kicking off what is expected to be a long slide
down.
"Customers are constantly getting whipsawed," said one PP
distributor about current market dynamics. "They know that within 10
minutes of getting all filled up with high-priced resins, prices are
going to go careering back down on them It's no way to run a business."
VOLATILITY IMPACT
Several
years of this type of volatility has had a negative impact on market
growth. In 2012, Phillips Sumika shuttered its 365,000 tonne/year PP
plant in Pasadena, Texas, because of tough market conditions. Market
participants speculated that other closures or consolidations might be
on the horizon, though that has so far not proven to be the case.
For full year 2012, the US PP market saw sales growth of less than 1%, according to data from the American Chemistry Council (ACC).
While domestic sales improved by slightly more than 1%, the overall
figure brought down by an 11% drop in export sales. For the year,
exports accounted for less than 5% of sales, according to the ACC.
Low
demand growth is expected to continue for at least the next few years,
until the PDH units are up and running and propylene becomes more
available, sources said.
Stewart Hardy, the global manager for
petrochemical market dynamics for Nexant Chemsystems, has said the
planned PDH plants will cover the propylene lost as a result of a shift
by US steam crackers to lighter feedstocks, in addition to providing for
some growth.
EIGHT PROJECTS
The eight new projects
announced by six different producers in North America could bring at
least 4m tonnes/year of propylene capacity to market. On 18 March,
US-based midstream company Williams said it plans to build and operate a
500,000 tonne/year PDH plant in Alberta, Canada, at a cost of $900m.
The facility is scheduled to come on line in the second quarter of 2016
and capacity could double in the future.
The propylene will be
sent to plants along the US Gulf Coast, Williams said. The company
expects the polymer-grade propylene (PGP) will be among the lowest-cost
PDH-sourced monomer in North America. Williams is also exploring new
propylene markets in Alberta.
Some naysayers doubt all of the
announced PDH units will be built. LyondellBasell CEO Jim Gallogly has
said he is sceptical about a lasting US propane advantage because of
possible of propane exports out of the US.
But for the most part,
market participants and industry watchers see good times ahead, with
the first benefit being less volatility for the PP market. A more stable
source of propylene tied to natural gas
will lead to less reliance on the refining sector, which will lead to
fewer price swings during refinery turnaround season. "Anything that can
reduce the volatility of polypropylene, or ultimately help with
propylene prices is a good thing, because PP has been on a rollercoaster
ride for a good part of the last couple of years," said Phillip Karig,
managing director of Mathelin Bay Associates, a US and European plastics
industry consultancy.
It has been the volatility, more than
higher resin prices, that has slowed demand in the PP market and caused
processors to switch to polyethylene (PE), or, where not possible, to importing finished goods from Asia.
"The
volatility is very hard to live with if you are making items for a big
box retailer," Karig said. "You can't say, 'You know that microwavable
tray I sold to you for 20 cents last month, well I'm now going to sell
it to you for 30 cents.' It is just not going to work." Once the
volatility is gone, additional growth in the PP market, is possible
sources said. "There will be buyers who switch back," Karig said.

ROOM FOR MORE PP PLANTS
So
far, there have not been any significant announcements about new PP
capacity planned for the US. However, with US production rates running
typically in the low-80% of capacity range, market participants say
there is plenty of room for existing plants to increase production rates
to absorb some of the extra propylene that will be produced.
And as with planned expansions in the US ethylene
and PE markets, much of any additional capacity created will be
targeted at the export market. "When propylene prices are too high, we
export less PP, so a lot of additional propylene from PDH plants
probably means that price is going to come down, which means it will
make sense for the US to be able to export more," said Dan Lippe,
president of Petral Consulting Company.
With global PP demand
growth estimated at 5% per year, and US PP demand growth significantly
lower than that, it makes sense for US producers to eventually target
global buyers.However, while it will lead to more stable demand, Lippe
cautioned that increased exports will not necessarily mean significant
profits for PP producers. "The people who build the PDH plants, they
will make money. How they sell their propylene is another question, but
my view is they will turn it into PP, because it is easier to ship," he
said. "I'm not saying there is going to be a golden age for PP. I don't
think there is."
Additional reporting by Al Greenwood In Houston
http://www.icis.com/Articles/2013/04/05/9656095/market-outlook-new-pdh-units-may-lead-to-us-polypropylene.html
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