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Global propylene demand to continue outpacing supply

21 October 2021 Matthew Thoelke

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

Global propylene demand growth - IHS Markit

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

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