Polypropylene 2024 Demand Outlook

The US polypropylene (PP) industry was buffeted by weak demand in 2023, and that may well continue in 2024.

The US auto sector, which hummed along over the summer of 2023, slowed sharply in the fourth quarter of 2023 after automakers worked to resolve labor walkouts and dropping demand along the PP supply chain.

Processors are telling suppliers they will be satisfied if 2024 orders come in at levels similar to those seen in 2023. There is plenty of caution about the year ahead, especially after a year in which North American PP operating rates struggled to climb out of the 70% range.

Despite the weak demand, PP spot prices have been moving up since July 2023. That has perplexed buyers who don’t believe market fundamentals support higher prices.

PP homopolymer for injection molding was assessed at 57cts/lb FOB Midwest on Dec. 13, up 11 cts from the 2023 low of 46cts/lb in June. Over the same period, PGP contract prices have increased by 13cts/lb. PP producers raised prices in 2023 to improve margins, but the increases have drawn limited support.

The spot polymer-grade propylene (PGP) contract market, upon which most PP contract pricing is based, saw an average month-to-month fluctuation of more than 5cts/lb in 2023, including an 11ct spike in January 2023, followed by an equally large drop in April. That volatility is hurting PP demand.

Lower, more stable propylene monomer costs would help demand, but propylene inventories appear to be somewhat thin heading into 2024, and PP market participants are concerned that heavy spring refinery and cracker maintenance could keep polymer-grade propylene prices elevated for a few more months.

North American PP producers are expected to keep operating rates low, in line with their demand forecasts, into 2024. Unlike the polyethylene industry, PP lacks a consistent export arbitrage to quickly move excess product when domestic sales fall short.

New capacity ramped up in 2023, and more is scheduled to come online in 2024, likely meaning that PP producers must either find demand growth or reduce older, less efficient capacity. However, limping along with operating rates in the low 70% range is not a sustainable approach for the long haul.

At least for now, the industry appears to be trimming older capacity. Braskem this year idled indefinitely one of the two PP trains at its 414,000 metric ton/year Marcus Hook, Pennsylvania, facility.

Market participants said the unit was idled to make room for the new 525,000 mt/year Heartland Polymers plant in western Canada, which is expected to operate at capacity because of its access to low-cost propane feedstock.

Invista is optimizing and expanding its annual production capacity in Longview, Texas, by about 100 million lbs in the current quarter and Formosa is expected to bring a 250,000 mt/year PP unit online sometime in the first half of 2024. Operating rates will be further challenged by these new capacities.

China emerged as a more consistent supplier of PP exports to the global market in 2023 and is expected to continue in that role. PP markets in Asia were oversupplied throughout 2023, and global PP margins have been weak.

The low PP prices in Asia prompted some high-cost Korean producers to idle some capacity in December.

Some North American processors have booked import volumes for early 2024, taking advantage of competitive prices from Asia and the Mideast to hedge against further price volatility. PP import volumes are expected to rise in early 2024 and could help lead to a correction in the market.

Propylene supply also could become more balanced in 2024, if only because there are fewer unplanned outages at propane dehydrogenation plants. And some crackers that had extensive downtime in 2023 will have returned to service.

Chevron Phillips is ready to commission a new refinery-grade propylene splitter at its Cedar Bayou, Texas, facility, but PP market participants said the net change to propylene supplies won’t be significant.

Over the longer term, PP producers are looking further afield for feedstock supply. Braskem, in early 2023, said it was studying a project to convert bioethanol to propylene. Such a project would help solve the propylene supply problem as well as address sustainability needs, but it remains to be seen whether such a plant will be built.

Tags: Petrochemicals, Propylene