Market conditions vary from region to region and uncertainty about the PP is expected to rise in the second half of 2021. Factors supporting prices in the first half of the year, such as healthy downstream demand and tight global supply, are expected to continue into the second half of the year. But their impact could be undermined by Europe's ongoing logistical woes as the US prepares for the upcoming hurricane season and new capacity in Asia.
In addition, a new wave of crown infections is spreading in Asia, disrupting expectations of future improvements in PP demand in the region.
Increased uncertainty over the Asian outbreak has dampened downstream demand
The Asian PP market was mixed in the second half of the year, as strong demand for downstream medical and packaging applications was likely to be offset by increased supply, a new outbreak of new crowns and continuing problems in the container transport industry.
From June to the end of 2021, about 7.04 million tons/year of PP capacity is expected to be operational or restarted in Asia and the Middle East. This includes China's capacity of 4.3 million tonnes/year and other regions' capacity of 2.74 million tonnes/year.
There is uncertainty about the actual progress of some expansion projects, and the impact of these projects on supply in the fourth quarter of 2021 may be delayed until 2022, taking into account possible delays.
During the global PP shortage earlier this year, Chinese producers demonstrated the feasibility of exporting PP, which helped to increase export channels and increase market acceptance of china's PP, which is competitively priced, the sources said.
While long-term opening of Chinese export arbitrage windows, such as those from February to April, is not common, Chinese suppliers are likely to continue to explore export opportunities, particularly homogenous polymer commodities, as capacity expansion accelerates.
While demand for medical, health and packaging-related applications, vaccinations and some economic recovery will help support PP demand, uncertainty is growing in Asia, particularly in India, the continent's second-largest demand center.
PP supplies in the U.S. Gulf region will remain strong as hurricane season approaches
In the second half of 2021, the U.S. PP market will address a number of key issues, including addressing health needs, tight supplies and the upcoming hurricane season.
Market participants will face a supplier's June 8 cents per pound ($176/tonne) price increase, which is likely to continue to rise as raw material monomer prices rebound.
The increase in supply is expected to meet strong domestic demand for resins, making export supplies weak by 2021. Prices are expected to come under pressure as work returns to normal in June, but that sentiment has weakened as prices climb in the second quarter.
Platts FAS Houston's list price has risen $783 a tonne, or 53 percent, since January 4, when it was valued at $1,466 a tonne as winter storms in the region closed many production plants, further exacerbating an already tight supply situation. The list price hit an all-time high of $2,734 a tonne on March 10, according to Platts data.
Before the cold winter, the PP industry had been affected by two hurricanes in August and October 2020, which affected factories and cut production. Market participants are likely to keep a close eye on production in the Gulf of America while carefully managing inventories to avoid further supply cuts. The U.S. hurricane season begins on June 1 and runs until November 30.
There is uncertainty about European supplies as imports are challenged by a global shortage of containers
Europe's PP supply is expected to be unfavourable as a global container shortage limits imports from Asia. However, with the successful spread of vaccines on the continent, as well as the lifting of outbreak-related restrictions and changes in consumer behaviour, new demands may arise. Healthy PP orders in the first half of 2021 pushed prices to record highs, with spot prices rising 83 per cent in western and northern Europe due to supply shortages, peaking at 1,960 euros per tonne in April. Market participants agree that PP prices may have hit the upper limit in the first half of the year and may be revised downwards in the future.
"If you look at pricing, the market has peaked, but I don't think there will be a big drop in demand or pricing, " says one producer. For the rest of the year, the European PP market will need a remedy to compensate for a global container shortage that has kept the market in balance by causing supply chain delays and additional logistics costs in the first half of the year.
Both producers and processors will take advantage of the traditional summer calm to raise inventories in preparation for an expected pick-up in demand in the second half of the year.
The easing of the embargo in Europe is also expected to inject new demand into various parts of the service sector, with rising demand for packaging likely to continue. But given the uncertainty about the extent of the recovery in European car sales, the outlook for demand in the auto industry is uncertain.
