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Despite Economic Dip, Polypropylene Market Remains Strong • With prof its hovering around reinvestment levels, producers plan a bevy of capacity expansion projects through 1998
Polypropylene prices hold, polyethylene prices drop Cents per lb 501
Polypropylene
Susan J. Ainsworth, C&EN Houston ince spring of last year, U.S. plas tics producers have been riding a long-awaited wave of economic recovery. They are trying to make the most of the current window of opportu nity, which won't last forever in this cy clical business. Not surprisingly, they have passed through as many price in creases as the market could bear. Over the summer, however, as U.S. economic growth has cooled, demand, and conse quently pricing, for most polymers has lost momentum. Some polymers are being hit harder than others. For example, U.S. polyeth ylene prices began to level off in Janu ary, then dipped in June and again in July. On the other hand, U.S. polypro pylene prices have not yet lost ground. After rising monthly from January through April, they since have re mained stable at 46 cents per lb. "Poly propylene is more sound than polyeth ylene. Inventories are lower. Plants are running well/7 says Dennis L. Rohlfing, vice president for polymers at Hous ton-based consultants DeWitt & Co. And producers don't expect polypro pylene prices to erode any time soon. Some observers predict that the polypro pylene producers' profits should contin ue to remain strong through the second half of 1996. Prices of polymer-grade propylene, a key raw material, have fi nally begun to level off after spiraling upward for months. These increases were sparked by unplanned outages in late 1994 that severely crimped supplies of the feedstock. Now that those prob lems have largely been resolved, poly-
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Note: Price for general-purpose polypropylene homopolymer; price for injection-molding-grade high-density polyethylene. Source: DeWitt & Co.
propylene producers anticipate that pro pylene prices will begin to drop over the next few months. With polypropylene producers' prof its now hovering around reinvestment levels, a dozen U.S. producers are lined up to add almost 3 billion lb of capaci ty between 1995 and 1998, representing a 25% boost. During 1995 and 1996 alone, Fina, Epsilon, Solvay Polymers, and a joint venture between Phillips and Sumika are slated to complete ma jor expansions. And early this summer, Exxon Chemical filed a permit with the Texas Natural Resource Conservation Commission for an expansion of its Baytown, Texas, polypropylene facility; it now awaits board approval. The string of projects raises the ques tion of whether more capacity is really needed to satisfy future polypropylene demand or whether it will simply en courage the onset of the next down cy cle, returning producers to a period of overcapacity and weak pricing. But for now, producers are comforted by the fact that the slowdown in the U.S. economy has not hit their market as hard as it has hit other polymers. Unlike
some plastics, polypropylene does not rely heavily on one particular end-use application. For example, the linear lowdensity polyethylene market is con trolled largely by consumption of plastic film, which represents about 65% of total demand. However, polypropylene's largest end-use segment—fibers and fil ament—represents only about 29% of to tal polypropylene demand. As a result, a slowdown in sales of polypropylene car pet fibers might not have an overriding effect on polypropylene demand and may even be offset by growth in another segment such as rigid packaging, which represents 15% of the market. Demand for polypropylene is ex pected to grow by only 5 to 7% in 1994, compared with 9% growth in 1993 and 14% in 1994. But producers say the lower growth is due only in part to the overall slowdown in the economy, which they believe to be temporary. 'The last few months have been a little slow. Demand in the carpeting and the automotive markets has been down, but this could also rebound in a hur ry/ 7 says Jim Bob Carpenter, general manager for polypropylene at Dallasbased Fina. Polypropylene demand is also being suppressed by restrictions in available capacity, notes Carpenter. Demand can't grow much more than about 6 or 7% in 1995 because that's all capacity will in crease over 1994, Carpenter adds. He es timates that by the end of 1995, U.S. pro duction will reach 10.7 billion lb, up only about 7% from 1994. With U.S. polypro pylene plants running at near 100% of capacity, producers are selling all they can make. Despite the tight supply-and-demand balance, U.S. polypropylene producers are losing their most recent battle to raise prices. Several producers announced a 3-cent-per-lb price increase for June 1. Shortly thereafter, another producer un dercut that increase, offering to raise prices only 2 cents per lb, effective July 1. Then in mid-July, a producer rescinded
Solvay Polymers' polypropylene plant in Deer Park, Texas, is slated for expansion.
know how to live with profitability," says Bauman. "It is a very narrowfocused industry. Companies tend to base their demand forecasts on the last two points on the graph." With two good quarters under their belt, polypro pylene producers have forgotten the 14 preceding unprofitable quarters when planning capital projects, he adds. Be cause the U.S. polypropylene business is market-share driven, producers often add capacity to demonstrate their com mitment to a business rather than to satisfy a true market need. Some producers, however, disagree. Says Fina's Carpenter, "If you assume that polypropylene demand will grow by 6% per year—and that's probably a conservative figure considering growth rates over the past few years—the U.S. market will need the equivalent of two world-scale plants per year just to meet market demand." Carpenter also refutes claims that the polypropylene industry is repeating the same overbuilding mistakes it made during the last cycle. "The capacity add ed in the mid-1980s represented a great er part of the total market than today's expansions will be, he points out. Be tween 1984 and 1988, producers expand ed capacity to 7.66 billion lb from 5.42 billion lb—a net increase of 2.24 billion lb, which represented a whopping 41% of the total market. In contrast, polypro-
its 3-cent-per-lb increase. The net result: "The stabilization of polypropylene Producers have had to go back to the prices is going to encourage more April price of 46 cents per lb. To move growth in demand," says Brad Jones, forward with a price increase now vice president for polypropylene mar would risk market share, which will be keting and sales at Huntsman Chemical. much more precious when the supply- "When the price of polypropylene goes and-demand balance loosens up over up, you start to see the potential for met the next few years. al coming back in a certain end-use mar Weakening of polypropylene export ket, for example. However, with the out prices may be one factor behind plateau- look of stabilized polypropylene prices, I ing prices, says Robert J. Bauman, a vice think we are going to be able to [sustain] president at Tarrytown, N.Y.-based con the kinds of growth rates that we've en sulting firm Chem Systems. Exported joyed over the past several material includes any polypropylene years." that is shipped to Asia—whether out of At the same time, however, U.S. polypropylene producers the U.S., South America, or Europe. the tight supply-and-demand plan to expand capacity 25% "When polypropylene export prices situation should keep poly Capacity drop, it usually signals some weakening propylene prices from falling ο change Millions of lb 1995 1998 1995-98 of the world market," Bauman explains. too much. "Because very little U.S. prices then generally plateau or new capacity has come onAmoco 1,710 1,760 2% mimic the drop, but it's rare that the U.S. stream this year, any problem Aristech Chemical 810 9 885 price goes up when the export price in the polypropylene business Epsilon Products 360 720 100 goes down, he says. "Typically, produc will further tighten the mar Exxon Chemical 1,030 1,630 58 ers have exported their polypropylene ket and keep operating rates 995 •1,400 Fina 40 as a means to maximize their return." high for the rest of the year," Formosa Plastics 500 500 0 Now, the export price has fallen to the says Bauman. Huntsman Chemical 1,010 1,080 6 42- to 43-cent-per-lb range, 3 or 4 cents Although Bauman concedes Lyondell Petrochemical 42 350 500 below domestic prices. When the export that U.S. producers need to ex Montell Polyolefins 1,950 1,950 0 price drops too much, producers tend to pand capacity to meet market 480 Phillips/Sumika 750 56 withdraw from the export market and needs, he says producers are 280 Quantum Chemical 280 0 try to move the polypropylene into the going overboard. "There is ab Rexene 180 180 0 domestic market where they can fetch a solutely no way the market can 3 575 11 Shell Polypropylene 640 higher price. "And that's what I think is handle the flood of polypro Solvay Polymers 440 770 75 happening now," says Bauman. pylene that will come from the Unannounced13 — 350 — The drop in pricing of polyethylene numerous planned expansions and other materials that compete with over the next two years." The TOTAL 10,670 13,395 25% polypropylene in end-use markets may result, he says, will be oversupa Includes Seadrift Polypropylene joint venture with Union Carbide. b Projected but not formally announced. Source: Fina also be holding polypropylene prices ply and lower prices. down. "This industry does not 0
AUGUST 7,1995 C&EN
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The American Chemical Society Presents
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pylene producers are poised to expand capacity only by about 35% between ii:fi 1994 and 1998," says Carpenter. "We > M: may face weak months or weak quar ters, but I believe all the capacity that is being added will be needed over the long haul." vital course for scientific professionals who However, as the capacity goes onneed to know how to establish and maintain a stream, producers expect the polypro pylene market to soften over the short quality program for laboratory safety and health and term, but not weaken dramatically. Op how to provide appropriate training. erating rates will drop to a more com fortable level, and prices will begin to return to more historic levels. "So now Enroll Today In One of These 1995 Sessions: is the time for producers to start posi tioning themselves so that we can real September 25-27 October 16-18 ize a reasonable return on investment Chicago, IL New Orleans, LA when the market starts getting loose," says a marketing manager for one poly Here's What ΥουΊΙ Learn About: propylene producer, who spoke on the condition of anonymity. • Effective chemical · How to store, handle, and For example, several companies have storage systems control flammable hazard hazards purchased or merged with other compa Codes and standards Ways to establish hazard nies to gain economies of scale, expand into different segments of the polypro governing safety and identification and control pylene market or to enlarge their slice of health in laboratories measures the business, DeWitt's Rohlfing points out. In November of last year, Hunts man Chemical completed the purchase w m Major causes of Accidents . . . of Eastman Chemicars polypropylene Health Hazards of Chemicals . . . Protective Equipment business. Then about a month ago, the company closed the deal to buy Nova . . . Measures to take to prevent Fires, Personal Injury, Corp/s polypropylene business. Health Impairment, or Interference with Laboratory Last April, Montedison and Royal Operations . . . AND MUCH MORE! Dutch/Shell Group completed the merger of their polyolefins businesses. Now, Union Carbide confirms that it About the Instructors Register Today! Call the has made a bid for Shell's U.S. poly Continuing Education Short Course Norman V. Steere is a laboratory propylene assets, which must be sold Office at (800) 227-5558 (Toll Free) or safety and design consultant who under a Federal Trade Commission at (202) 872-4508. Or use the coupon presents in-house safety and health below to request a free descriptive ruling. courses for research organizations and brochure on this unique course. And it's not unlikely that other poly consults on the design of laboratory propylene businesses will change and storage facilities. hands in the near future. Thomas H. Yes! Please send me information on the Maurice Golden is a chemical Laboratory Safety and Health Short Course toWood, president of Huntsman Chemi engineer who worked on the design be held September 25-27, 1995, in Chicago, IL, cal's burgeoning polypropylene divi and construction of specialized and October 16-18, New Orleans, LA. sion, says the company is "still interest laboratory and production facilities ed in growing larger in polypropylene" before he retired from Eastman Name. and will be on the prowl for "other Kodak. businesses that might be for sale." Title _ Polypropylene producers are looking Roger R. Conrad is a chemist who is Organization. internally at their existing operations to Principal Safety Specialist for Address find ways to protect themselves as the Corporate Research Services at Air market cools. "Each polypropylene pro Products and Chemicals, Inc. ducer has traditional areas of expertise— City, State, Zip . Donald A. Spaeth is a Laboratory such as film, fibers, or packaging—in Health and Safety Consultant and an Mail or FAX to: American Chemical Society which it can command a premium," says Dept. of Continuing Education Adjunct Assistant Professor at the the anonymous marketing manager. Meeting Code LSH95 University of Cincinnati. 1155 Sixteenth Street, N.W. "Producers now are trying to shore up Washington, DC 20036 more market share in those areas either FAX: (202)872-6336 by dropping their price or touting tech nical superiorities of their resin." •
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