us polypropylene: supply and demand prospects

US Polypropylene: Supply and Demand Prospects

ICIS Webinar21 April 2020Zachary Moore, Deputy Managing Editor, Americas

Agenda

• Macroeconomic impact of covid-19

• US propylene—impacts of lighter cracker feedslates

• US PP—Supply length building

• New planned capacities—Is there still a case for expansion?

204/21/2020 US Polypropylene: Supply and Demand Prospects

Macroeconomic impacts of the coronavirus

04/21/2021 US Polypropylene: Supply and Demand Prospects 3


Source: IMF

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US

Eurozone

China

EXPANSION

CONTRACTION

NOTE: Figures through Mar 2020, US = ISM, Eurozone = IHS Markit, China = Caixin

China plunges onCoronavirus but snaps back

Global Manufacturing PMI

Coronavirus impacts vary by sector

04/21/2020 US Polypropylene: Supply and Demand Prospects 6Source: ICIS Analytics

Coronavirus impacts: More severe on PP than PE

• PE demand more focused on consumer non-durables such as food packaging, hence demand destruction is relatively minor

• PP use in automotive applications and consumer durables weighing on PP demand estimates

• Effects vary by grades: raffia and non-woven are strong, injection and copolymer grades generally weak


Source: ICIS Analytics

US propylene—changing supply landscape


• Gas cracking is solely focussed on the production of ethylene

• Heavier feedstocks produce significantly more co-products

Naphtha to Ethane:•95% reduction in propylene•96% reduction in butadiene•98% reduction in raffinate-1•98% reduction in pygas

Ethane cracking greatly reduces co-product production

Typical Yield Patterns of Different Steam Cracker

Feedstocks

0.0

0.5

1.0

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ETHANE LPG NAPHTHA

Cum

ulai

ve y

ield

of p

rodu

cts,

tonn

e Ethylene Propylene Butadiene

Raffinate-1 Pygas Fuel oil

Source: ICIS Consulting

Coronavirus impact on cracker margins

• Ethane advantage greatly decreased in low-priced oil environment

• Falling co-product values limits the attractiveness of heavier feeds

• LPG cracking tends to more advantaged in spring and summer, ethane regains advantage in winter


Source: ICIS Margin Analytics

Majority of US propylene sourced from refineries

• LPG cracking resulting in good availability from flex-crackers

• Ethane-only crackers produce only minimal volumes of propylene

• Refineries remain a key source of propylene

• Most new capacity to consist of PDH units


Refineries55%Crackers

31%

PDH12%

Metathesis2%

US PROPYLENE PRODUCTION--2019

Source: ICIS Supply and Demand Database

Lower refinery rates to cut into propylene supply

• Refinery rates have dropped under 70% amid coronavirus lockdowns

• Steep declines seen in demand for gasoline, jet fuel and other refined products

• Rates have been high for much of the past several years on strong export demand for refined products


US PP—Market characterized by supply length


PP—Supply tightness gives way to supply length

• US PP supply was tight for much of 2018, pushing prices higher

• 2019 saw supply lengthen and prices fall

• Debottlenecking projects added incremental supply in 2019 while a declining in manufacturing activity slowed demand

• Demand had been picking up early in 2020 before the coronavirus crisis


Similar trend in propylene

• Propylene followed a similar trend—tight supply in 2018 giving way to length in 2019

• In 2019, strong refinery rates and good margins for LPG in flex-crackers expanded supply

• Propylene supply will contract during the coronavirus crisis, but demand destruction will balance out the effect


Interpolymer substiution

• PP has competed favorably with GPPS recently

• Longer supply pushing PP suppliers to seek out alternative markets

• Sustainability pressures contribute to negative sentiment towards PS

• Coronavirus crisis easing restrictions on single-use plastics


PP: US gaining competitiveness in international markets

• US a net exporter of PP, with the bulk of exports going to Mexico and Canada

• 2018 saw higher import levels on favorable international arbitrage while exports declined

• Imports continued to rise in 2019, with Brazil as the largest exporter to the US


Capacity expansions--is there still a case?


North American on-purpose propylene projects

CompanyCapacity,

kt/yearLocation Start-up Status

Interpipeline 525 Alberta, Canada 2021 Under construction

Dow 100 Plaquemine, Louisiana Late 2021Adding FCDh to existing

cracker

Canada Kuwait

Petrochemical

(CKPC)

550 Alberta, Canada 2023 Deferred

Formosa Plastics 658 Point Comfort, Texas 2023 FID made

FG LA LLC 600 Louisiana 2024 Permitting

PetroLogistics II 500 US 2025 FID pending

Dow 500 Freeport, Texas 2025 FID pending

NOTE: Others by Ascend Performance Materials, Sunoco, Dow, Enterprise, REXtac cancelled

PP capacity additions

10/12/2019 US polyolefins 2020 Outlook: Challenges and Opportunities 20

Company Location Capacity (KTA)

Start-up date FID made

Braskem La Porte, Texas 450 2020 Yes

ExxonMobil Baton Rouge, Louisiana 450 2021 Yes

Interpipeline Alberta, Canada 525 2021 Yes

Formosa Plastics Point Comfort, Texas 250 2021 Yes

ExxonMobil Baytown, Texas 400 2022 Yes

CKPC Alberta, Canada 550 2023 Deferred

FG LA LLC St. James, Louisiana 600 2024 No

Thank you

us polypropylene: supply and demand prospects

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