The PP market has also been suffering from a surge in excess production capacity, said Pooja Jain, associate director at S&P Global Commodity Insights, as per Chemweek.
She noted that while the current PP investment cycle began in 2019, the initial overbuild was relatively modest, totaling around 3 MMt per year (MMt/y) through 2021.
“It wasn’t until 2022 that we started to feel the heat,” said Jain. Demand growth dropped close to zero that year while new capacity surged, and though demand rallied in 2023, more than twice as much new capacity came online, resulting in another 8.5 million metric tons of excess capacity in just two years. “It’s going to take us some time to absorb, and thus, in our estimation, we expect the market to remain long for at least two more years before showing any strong signs of recovery,” Jain said.
Rationalization will be necessary, and S&P Global expects close to 2 million metric tons of capacity to be shut down in 2024, much of it in China. “China has this long tail of very small, old, nonintegrated assets running at suboptimal [rates],” said Jain. “Will that help with prices? Not so much. … Northeast Asia prices have essentially bottomed out, and we don’t expect any strong recovery, at least this year.”
More capacity is on the way. India alone is expected to see a new project commissioned every quarter for the next two years, while China’s PP capacity is forecast to increase by 8 MMt/y over the next two years.
Jain noted that 69% of the PP capacity installed during 2019–27 will be located in China, and of that, 50% will be integrated with propane dehydrogenation units producing feedstock propylene. “Propane is a highly traded commodity with very well-established logistics and trade routes in place,” she said. “Any region that does not possess a significant source of domestic propane can easily import it at economic rates.”
China’s dependence on propane imports does give producers in the Middle East or North America a feedstock cost advantage, but the difference is not as great as that seen in the ethylene chain, Jain said. “Thus, we are seeing more and more polypropylene investment getting closer to the high-demand regions such as Asia and not to where the feedstock is.”
We remind, controversial EU Packaging and Packaging Waste Regulation approaches adoptionControversial EU Packaging and Packaging Waste Regulation approaches adoptionDetails of the provisional agreement on the Packaging and Packaging Waste Regulation (PPWR) have been published, containing a number of wide-ranging elements which will reshape the packaging sector across the next two decades. The regulation is now reaching its final stages but has faced a fraught journey through the various legislative chambers of the EU and has remained divisive among both legislators and the markets.
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