Propylene, polypropylene slump expected to persist in H1 2024

Amid overcapacity, weak demand and challenging economic conditions, the outlook for global propylene and polypropylene markets remains pessimistic for H1 2024.

Asia sees pressure from new capacity, weak downstream

New propane dehydrogenation plants (PDH) capacity additions in China and weak downstream conditions are likely to stifle recovery in Asian propylene value chains.

Any price recovery for feedstock propylene in H1 2024 is remote given the massive PDH expansion in China, sources said. Around 4.01 million mt/year of additional Chinese propylene production is expected to come online in the first half of the year, including Fujian Meide's 900,000 mt/year PDH unit in January.

"I am not expecting an improvement in propylene prices for 2024, not when so many new PDH plants are scheduled for startup," a Korea-based producer said. "Iin fact, I think it will take at least one or two more years until we can see a gradual improvement in the propylene market."

On top of this, closures for maintenance are expected to be limited -- with two PDH plants in Korea shutting for maintenance in January -- and this is unlikely to support market conditions.

In Asian polypropylene markets, expectations for H1 2024 are muted on poor demand and supply length concerns.

While the Lunar New Year holidays are expected to spur end-product production, capacity expansions in China and high production rates in Southeast Asia -- due to a combination of cashflow and cost-per-unit production considerations -- are expected to keep stocks ample despite poor profit margins.

With the South Asia-SEA spread narrowing, trade sources expect some Middle East origin cargoes to be redirected into SEA, particularly if the post-holiday demand fails to materialize in India.

Chinese conditions will be pivotal in any potential regional recovery, with the country's PP prices holding steady recently due to a relatively bullish futures market and government stimulus.

Europe braces for shifting value chain consumption trends

European propylene markets look set to struggle with poor market conditions across H1 2024, amid expectations of a continuation of structural length amid a weak macroeconomic environment.

The supply tightness seen in Q4 2023 is not expected to persist, with limited consumption across derivative markets cementing oversupply of propylene. As such, market sources have noted that oversupply and hand-to-mouth consumption are not expected to change until after Q2 at the earliest.

Nonetheless, consumption trends are generally anticipated to shift across the market, driven by buyer frustration with the pronounced gap in spot and contract prices across 2023. Increased spot activity is expected across H1, with buyers keen to reduce contractual commitments and sacrifice supply security in favor of competitively priced spot material.

Downstream polypropylene sectors are expected to see pressure in H1, with high interest rates continuing to limit end-user demand.

Conditions in key construction, consumer packaging and durable industries are likely to remain weak because of these macroeconomic headwinds.

There is potential for rationalization next year, with fears that oversupply will only be mitigated by the decommissioning of production sites. With Dutch multinational producer LyondellBasell already announcing the closure of its copolymer PP line in Brindisi, Italy, many participants expect further plant shutdowns to follow.

"If you look at the market and customers, they want better conditions, there is no appetite as profitability is so low" a producer said. "If you want domestic supply there is a certain price compared to other sources, if this is not met you need to rationalize.".

Weak American demand expected to continue

Polypropylene players in the Americas await a sustained pickup in global demand and a retreat in domestic polymer-grade propylene costs in H1 2024 to boost the lackluster market amid challenging macroeconomic conditions.

Prompt PGP levels rose 20% from the start of Q4 through mid-November 2023 amid PDH unit outages curtailing supply. Until monomer costs abate to lower levels, sources said, PP exports from the US are not workable given thin to negative profit margins and competitively priced Asian-origin resin.

With PDH units restarting, some market participants expect demand to pick up from January 2024 onwards on restocking needs.

However, the restarting of the PDH units is unlikely to spur a sustained demand increase and prices will continue to be closely tied to feedstock, S&P Global Commodity Insights olefins analyst Walt Hart said. US domestic propane is being shifted to China to meet their demand as more PDH units have started operations there.

Downstream PP market players are grappling with high interest rates tightening consumer budgets, leading to high finished goods inventories and less spending on the durable goods. Sources expect holiday spending, compounded by inflation, to pressure conditions through at least early 2024.

While less PP capacity expansion is expected in the Americas, Formosa Plastics is slated to complete a new 250,000 mt/year unit in Point Comfort, Texas in 2024. Suppliers have mostly shifted focus to domestic markets as exports remain challenging, which is not expected to change in H1.

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Chemical Trends H1 2024
This feature is part of our bi-annual report analyzing the biggest themes and trends that will dominate chemicals markets in the year ahead. Explore more features below, or to read articles looking at the year ahead for a wider range of chemical markets, visit Platts Connect

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