Propylene and PP Markets in 2023: Surplus Supply and Fluctuating Demand
Bearish Sentiment in Europe to Continue, Macroeconomics to Depress Demand
- Europe’s Bearish Propylene Market Outlook for 2023
- Europe’s propylene market is expected to continue experiencing bearish sentiment in 2023, primarily due to weak demand and a lack of market competitiveness. Despite a temporary recovery from record lows in September, where prices reached Eur460.50/mt FD NWE due to supply disruptions, spot activity remained subdued. Consumers reduced contractual volumes due to macroeconomic pressures, leading to a minimal level of trade.
- Macroeconomic Factors and Market Length
- Weak demand fundamentals are anticipated to improve from seasonal lows during the early stages of H1 2023. However, the prevailing market length is expected to persist due to factors such as inflation and the ongoing Russia-Ukraine war. This lengthening of the market is further exacerbated by the existing disconnect between term and spot market pricing. Energy and feedstock price volatilities limit sellers’ ability to maneuver pricing during negotiations for the former.
- Pessimism for Propylene Extends to Downstream PP
- The ambiguity and pessimism surrounding propylene also extend to downstream polypropylene (PP) markets. The uneasy balance between high production costs and weak demand is anticipated to continue well into the new year. Throughout H2 2022, the market experienced consistent pressure from energy prices and weak demand, resulting in widespread illiquidity. Additionally, the availability of lower-cost imported materials from the Middle East and Asia further impacted the market dynamics.
US Propylene Market and Impact on PP Demand
- While prices in the US propylene market may find support in H1 2023, the demand for downstream PP is not expected to outpace the fresh supplies from new capacities. Prompt polymer-grade propylene prices experienced a significant decline of over 60% between March and December 2022, driven by rising interest rates and high inflation. Consequently, demand for downstream polypropylene also decreased, with prices falling by 56% during the same period. Asian-origin resin emerged as a more competitively priced alternative to US Gulf Coast exports.
- New Capacities and their Potential Impact
- The commencement of ExxonMobil’s new 450,000 mt/year PP unit in Baton Rouge, Louisiana, in December is expected to boost propylene demand. This development offers some optimism as market sources indicate propylene prices reaching a low point and projecting a flat to slightly upward trend in December and January, followed by a projected upward trajectory in Q2. However, it is anticipated that PP demand will struggle to keep up with the growing global capacity, even with the addition of new facilities such as Enterprise Products Partners’ 750,000 mt/year propane dehydrogenation unit in Texas, set to start up in Q2 2023. The next significant capacity addition in North America is expected in 2024 when Formosa Plastics completes a new 250,000 mt/year unit in Point Comfort, Texas.
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