The 24th annual PEPP conference organised by IHS in Zurich discussed the future of the global polyolefin market. This year the conference was titled New Capacity, Shifting Trade Flows, and Opportunities for Value Creation and invited participants to discuss all the key market trends.

It is expected that the growth of capacities will be followed by a significant shift in feedstock supply for pyrolysis purposes. Naphtha as the dominant raw material accounting for 44% of the total balance last year will be gradually losing its position (by 2020, its share is expected to drop to 39%). The share of LPG is also going to decline, albeit at a slower pace (fr om 15 to 13%). Conversely, the share of ethane based feedstock is expected to increase fr om 36% to 39%, as well as that of other feedstock (from 5% to 9%). This will happen primarily due to higher ethane production in the US following the shale revolution. Today, we see a drastic reduction of the price gap between North American ethane and naphtha from Southeast Asia (from USD 850 per tonne in 2014 to USD 250 per tonne in 2016). By 2020, this gap is expected to widen due to growth in oil prices, but it will not reach previous levels (IHS forecasts USD 425 per tonne).

Ethylene will remain the key feedstock for polyethylene production, which will increase as well (at an average annual rate of 4.3% growing from 88.1 to 108.8 mt by 2020). The demand will be driven mainly by India and China wh ere consumption is expected to grow by 6.9% and 8.9% respectively. North America is expected to show a significant overproduction to be exported to South America and Europe.

New PP capacities are being extensively launched in China

China will be playing an ever more important role in the global polypropylene market in the coming years, although not just as a consumer but also as a supplier. China is wh ere a significant portion of new capacities is being launched. By 2020, its total capacity will reach 30 mtpa with the global capacity standing at 88.4 mtpa. Chinese PP capacities grow faster than demand, which will strongly influence PP prices in different regions, including Europe. One of the conclusions voiced at the conference was that China will put a ceiling on global PP prices. In addition, European manufacturers are becoming more and more attractive. Low oil prices have played a part in making European PP more competitive, capacity utilisation in Europe has reached unprecedented highs as companies tried to capitalise on the higher margins. The main raw material used in Europe is naphtha and its price closely correlates with the oil prices.

As for the Middle East, its producers exported about 7 mt of high density polyethylene (HDPE) in 2014, and are expected to export 8.2 mt in 2019. At the same time, exports of low density polyethylene (LDPE) should go up from 2.6 mt to 3.4 mt. Forecasts presented at the conference say that the Middle East could overtake Northeast Asia in PP exports, which are expected to grow from 1.2 mt to 1.8 mt. Having said that, it is hardly likely that there will be any major growth in the region’s petrochemical industry. Falling crude oil prices resulted in lower revenues from export, which had a negative impact on financing available for major polyolefin production projects in the Middle East. State companies or companies partially owned by the state are key investor is this region. Because of falling oil prices, their financial resources are extremely lim ited at the moment.

Significant changes are expected to happen in Russia and the CIS in 2020 when SIBUR commissions its huge ZapSibNeftekhim complex in Tobolsk. SIBUR’s idea to build a petrochemical complex in the Amur Region in Russia's Far East close to the Chinese border was also discussed at the conference. If built, it will include an ethylene plant with a capacity of 1.5–2 mtpa and will use feedstock supplied by Gazprom under a long-term contract. This project will target primarily export markets, including China and other Southeast Asia countries. Currently, a feasibility study is underway, while the investment decision is expected to be made after 2017.

On the whole, as it was resumed at the conference, the global polyolefin market will be undergoing significant changes over the next few years. However, the situation will depend on hydrocarbon prices and on whether the recently announced projects go ahead as planned.

This publication reproduces the text of IHS Chemical Week

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