The startup of new capacity in the US and Canada is expected to change the fundamentals of the Mexican polypropylene (PP) market in coming months, after a 2022 that began with limited availability of imported material and ended with little demand for the resin.
Increased capacity at the ExxonMobil plant in Louisiana and the startup of the Heartland Polymers plant in Alberta, Canada, together bring almost 1mn/t of new capacity to the market, essentially doubling it in the US and Canada, which will create greater availability in Mexico.
"That is why we believe that the prices in 2023 should be lower than the ones we are currently seeing and not as high as those seen in the first half of this year," a local source said.
The new capacity should also help Mexican PP demand pick up because when prices drop, demand is usually stimulated, as customers in general can transfer those prices to their downstream customers'chains easier, benefiting the whole sector.
Another driver for a rebound in Mexican PP demand next year relates to nearshoring, the decision to move production closer to the US market.
Rail constraints, outages limit 2022
Mexico's PP market during the first half of 2022 was marked by limited availability of US produced PP due to a lack of rail cars and several unscheduled plant shutdowns, which in turn led to rising prices.
But by mid-year PP prices started a downward price trend which remains in place as the year wraps up. The primary reasons for the lower prices were the drop in feedstock propylene prices and decreased margins in the PP prices.
As demand has dropped considerably in most market segments, the new capacity additions from Canada and the US also helped in pushing prices down.
Even with the higher prices seen during the first half, demand supported US exports to Mexico, which peaked at 176,000t in March this year. The following months saw some hiccups in exports until June, which saw exports into Mexico in the 140,000-150,000t range.
From July to September, when demand declined, US exports to Mexico failed to surpass the 140,000t barrier, according to the latest available customs data compiled by Global Trade Tracker.
US PP exports to Mexico totaled 542,000t during January-September, data show. For all of 2021, US PP exports to Mexico hit 708,000t.
In the meantime, Mexican PP inventories rose due to the lack of sales and poor demand in general in the second half of 2022.
