Commodities 2021: Global propylene likely be fueled by polypropylene, economic recovery

US-Europe arbitrage to remain closed

China's imports to decrease amid rising self-sufficiency

Petrotahlil — The global propylene market is likely be supported by firming demand from the polypropylene sector moving into 2021 as economic activity recovers as countries exit lockdowns and COVID-19 vaccines show promising results.

With a possible vaccine on the horizon, demand from the automobile sector could also be expected to increase as travel resumes, propylene market participants said. Supply tightness in some regions will also support the global propylene market.

In Europe, some cracker turnarounds were delayed from 2020 to 2021 due to labor and logistical challenges caused by the pandemic. At least four turnarounds are now planned for 2021, including some scheduled in the first half, which could reduce supply in the market.

Participants also expect refineries in Europe to continue operating at lower run rates in H1 in view of reduced fuel demand as people travel less and continue to work from home. Lower refinery operating rates may impact the availability of propylene, particularly refinery and chemical grades.

According to S&P Global Platts Analytics, the operating rates of residue fluid catalytic crackers is likely to increase in 2021 from 2020 as gasoline demand picks up, but the increase will be limited. Analytics predicts RFCC operating rates in 2021 will average 79%-80%, up from 75%-76% in 2020.

In Asia, new downstream polypropylene startups in South Korea are expected to reduce the country's propylene exports.

Two PP plants owned by SK Advanced and Hanwha Total with a total 800,000 mt/year of PP capacity are expected to come on stream in H1, with no additional propylene capacity being added until H2. South Korea is the major supplier of propylene to China. "That means less export from Korea to China," said a South Korean producer, who added there would be a supply gap for propylene until new facilities came on stream in South Korea.

CHINA SUPPLY INCREASING

Market participants will be closely monitoring the increase in China's new standalone propylene capacity in2021, as it will impact the country's demand for imports.

"In H1, plenty of new production is coming online, while the demand side is not as big as the production growth," an international trader said.

Oriental Energy is on track to finish building its new 660,000 mt/year PDH plant and two downstream 400,000 mt/year PP plants in Ningbo by January 2021, while Fujian Meide Petrochemical's 660,000 mt/year PDH plant is due to start up by end December and is expected to produce on-specification propylene by January 2021.

"If Fujian Meide is able to start its PDH plant on time this time round, it will reduce China dependence on imports," an International trading source said. Fujian Meide is China's largest propylene importer, and also purchases domestically to feed its two 500,000 mt/year PP plants.

China's propylene imports are expected to continue sliding in 2021 in line with its rising production capacity. The country's imports over January-October fell 19.5% year on year to 2.06 million mt, customs data showed.

EUROPE-US ARBITRAGE

The flow of US propylene to Europe stopped in 2020 as US domestic prices rose, and market participants expect arbitrage opportunities to remain closed during H1 2021. An uptick in demand, lack of imports and scheduled outages could see propylene availability in Europe become tight, although this will be limited by the extent of the recovery in demand.

In the US, prices were well into the mid- to high 30s cents/lb in the second and third quarters and are expected to remain in this range in H1 2021 due to continuing tight supply and high downstream demand, market sources said.

REFINERY OPERATING RATES

In the US, refinery-grade propylene or RGP prices fell to an 18-year low in Q1, driven by high refinery utilization rates. Domestic refinery utilization rates were at 82.3% at the time of the 18-year low, according to US Energy Information Administration data.

RGP prices recovered as rate reductions resulted in a tightening of upstream propane supplies, and supply of derivative propylene. Prices have remained steadily in the high-teens since Q3.

While there is uncertainty over COVID-19 restrictions in 2021, RGP demand may be driven up by increased road travel as people get "COVID fatigue" after the unprecedented restrictions of 2020, an RGP source said.