Asian PP boosted by supply shortages, resilient demand

The Asian polypropylene (PP) market has remained resilient during the extended Covid-19 pandemic, with prices gradually rebounding since last year's second quarter. It continues to be supported by firm demand for applications such as food packaging, household goods and appliances, along with medical goods, as well as the unforeseen tightening of supplies.

China's PP prices rose to a more than two-year high of $1,250/t cfr China on 25 February. India's PP prices rose to $1,480-1,500/t cfr India with southeast Asian PP prices at $1,330-1,350/t cfr southeast Asia for dutiable cargoes on 25 February, up by 64pc and 47pc respectively from a year earlier, according to Argus data.

The Latin story

Firmer demand and tighter supplies of PP in Latin America since early this year have turned the region into a new hot spot for international producers for PP exports, keeping the Asian market balanced despite weaker Chinese import demand.

PP availability will be further reduced because of disruptions at US plants in February, with Latin America losing a major import source.

Brazilian producer Braskem is expected to shut its cracker and PP plant in Sao Paulo in March for maintenance.

PP demand in Latin America is firm and prices were around $1,800/t last week for the homopolymer grade.

China turns exporter

China, a net importer of around 6.5mn t/yr of PP in 2020, is now exporting it to various regions. China added around 2.6mn t/yr of new PP capacity in the second half of 2020.

Chinese converters have been cautious when restocking, dreading a slowdown in demand for finished goods in January. Domestic producers have offered large discounts to keep domestic inventories low.

China's domestic inventories were at 865,000t on 25 February, two weeks after the lunar new year holiday, against 1.1mn t and 1.3mn t for the same period in 2019 and 2020 respectively.

But supply shortages beyond China have encouraged Chinese producers to export PP to achieve higher netbacks, with offers for PP rising to $1,300-1,380/t fob China in late February against $1,100-1,150/t fob China in January.

Plant maintenance and disruptions

A massive winter storm that hit the US in mid-February forced PP producers to declare force majeures. Approximately 7mn t/yr of PP production capacity was shut, with the majority off line for at least two weeks.

The sharp increase in US PP prices have offered unusual arbitrage opportunities, further tightening volumes available to other regions.

The shutdown of PP plants across Asia also tightened spot supplies in late February.

India's Hindustan Petroleum-Mittal Energy joint venture shut its 440,000 t/yr PP plant in Bhatinda from late January for around 45 days.

Southeast Asia saw four producers cut production at their PP plants intermittently in February because of feedstock propylene shortages and technical issues.

Around 1mn t/yr of Chinese PP output capacity is expected to be shut for maintenance from the end of March.

Two producers in the Middle East are expected to shut their plants in March, affecting 800,000 t/yr of PP capacity, for 2-3 weeks of planned maintenance.

Middle East producers benefit

Middle East producers, the regular exporters to Asia-Pacific, are seeing advantages when PP supplies are tight in Europe and the Americas and shipping constraints continue to limit long-haul trades. Middle East producers, given their location, now have the option to export PP to the US, Europe and South America.

Middle East producers are also expected to capitalize on their diversified export portfolio in Asia-Pacific to maximize sales netbacks.

China is seeing its export demand increase. China's PP exports for February-March loading are expected to rise to 150,000-200,000t or higher.

Southeast Asian producers can now export PP beyond Asia, which has been difficult earlier this year as higher freight costs limited long-haul trades.

Market turning point?

It remains to be seen if the sharp increase in PP prices over the past two weeks will destruct demand for non-essential applications such the automotive and construction sectors.

But its inherent importance in the food packaging, medical and durable goods sectors, which has been further amplified during the Covid-19 pandemic, has kept demand in these sectors firm.

The easing of prices will depend on how soon global PP supplies can normalize and the start-ups of new plants.

China and South Korea are expected to add around 2mn t/yr of new PP production capacity in this year's first quarter, mostly in March. This includes China's Oriental Energy 800,000 t/yr PP plant in Ningbo, South Korean firm Hanwha Total's 400,000 t/yr PP plant and SK-Advanced-Polymirae's 400,000 t/yr PP plant in Daesan and Ulsan respectively.

Oman's OQ is expected to start up its 300,000 t/yr plant in this year's first quarter.

Malaysia's Pengerang Refining and Petrochemical will delay the start-up of its refinery and petrochemical complex to the second half of 2021.

By Yee Ying Ang