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The COVID-19 pandemic has impacted worldwide propylene supply
"much more significantly" than for other petrochemicals due to
constraints on gasoline and diesel markets, and the resulting
impact on primary supply, according to Matthew Thoelke, executive
director for olefins and derivatives, in Europe, the Middle East
and Africa (EMEA) at IHS Markit.
This year, however, has been "very unexpected" in terms of the
industry's profitability and demand recovery, Thoelke said in a
presentation at IHS Markit's Global Chlor-alkali and Polyurethanes
and Vinyls Conference, held recently in a virtual format. "We have
seen a very strong demand rebound, especially in the durable goods
sector, and that's a big part of propylene demand," he said.
Propylene supply has lagged behind demand, particularly in North
America and Western Europe, but supply in Asia has caught up and
the market "is already relatively long there," Thoelke said.
Moving toward the end of 2021 and into the early part of next
year, however, current COVID-19 policies in Asia risk "significant
demand derailments. Major lockdowns once again in China and
elsewhere in Asia are likely to have significant impacts," he
said.
In the United States (US), propylene demand remains ahead of
supply, with IHS Markit seeing "a very tight market in the US
moving forward. The same can be said for Europe," Thoelke said.
"As we look forward, the upcycle in 2021 has really restored
faith in the industry. There is a lot more capital willing to find
a home in petrochemicals…The investment profile has moved to become
more aggressive," Thoelke noted. "Ultimately, that's going to be
offset by the pressure we see in the refining world. We have moved
into a lower fuels usage environment… and a lower profile for fuels
demand moving forward means less propylene."
As a result, the race between propylene supply and demand will
continue. "We've seen that demand has outstripped supply for most
of 2021. That could potentially change in Asia as we move towards
the close of this year," he said. In 2022, the propylene market in
the western hemisphere looks set to be an environment where demand
will continue to grow more quickly than supply, although in Asia
"the supply profile is growing aggressively enough to keep up with
expectations for demand growth," according to Thoelke.
Global propylene demand expected to continue to grow for
next 4 - 5 years
Source: October 18, 2021, Mark Thomas
Thoelke also flagged the importance of the polypropylene (PP)
market, which is "by far and away the largest driver of demand."
IHS Markit's expectations are for PP demand growth to continue for
the next 4-5 years, with Asia unsurprisingly remaining the main
driver.
"We see huge amounts of additional supply of propylene [in
Northeast Asia] and that's really matched with derivative
investments. Last year in China there were 20 new PP units [that
started operations], with 6 million metric tons/year (MMt/y) of
capacity, and we're going to see around 17 added this year, with
4.9 MMt/y of capacity. As we move forward, we expect even further
additions to come, to meet the growth in [PP] demand, not just in
China but also elsewhere in the region," he said.
In mainland China, there are currently 12 propane
dehydrogenation (PDH) units under construction and planned for
startup in 2021-22, representing total propylene supply of 7.7
MMt/y. These will add to China's existing 18 PDH units already in
operation, with combined capacity of 7.8 MMt/y. Another 12 PDH
units are at the planning stage, with startups currently scheduled
for 2023-24 representing a further 8.2 MMt/y of propylene
capacity.
Northeast Asia, including mainland China, clearly remains the
center of focus for new investments, according to Thoelke. "If we
look at the capacity additions planned, through from 2016-21, all
are based in Northeast Asia, and the same is true when we look at
the forecast over the next five years," he said.
Mainland China will, however, remain a significant importer of
propylene with a forecast requirement for about 10 MMt/y of net
equivalent imports, he noted.
Posted 21 October 2021 by Matthew Thoelke, Executive Director, Olefins and Derivatives, EMEA, IHS Markit
