Due to the wide variation of market conditions in different regions of the world, the polypropylene (PP) market uncertainty expectations are rising in the second half of 2021. Market players predict that the factors that supported PP prices in the first half, such as healthy downstream demand and tight global supply, will continue into the second half, but the upcoming hurricane season in the United States, the upcoming production of new capacity in Asia and the ongoing logistics difficulties in Europe will all have an impact on the PP market in the second half. In addition, a new round of COVID-19 is still spreading in many Asian countries, which may change people's expectations of future PP demand improvement in the region.

Asia: Multiple uncertainties restrain supply and demand

Due to the rising uncertainty of the epidemic, downstream demand in Asia and the Middle East market may be suppressed. In the second half of this year, the Asian PP market was mixed, on the one hand, the demand for downstream medical and packaging applications was strong, on the other hand, the region is also facing new capacity increases, a new round of epidemic outbreaks and continued problems in the container transportation industry and other troubles, these uncertainties may curb the demand for PP in the region.

According to statistics, in terms of production capacity, from June to the end of this year, Asia and the Middle East are expected to put into operation or restart about 7.04 million tons/year of PP capacity, including China's production capacity of 4.3 million tons/year and other regions' production capacity of 2.74 million tons/year. There are also uncertainties about the actual progress of some expansion projects. These projects will have an impact on supply in the fourth quarter and may also have a delayed impact on market supply until 2022. Sources said that during the global PP shortage earlier this year, Chinese producers offered the viability of PP resin exports. This helped increase export channels and improve market acceptance of competitively priced Chinese PP.

PP demand is supported by demand for medical, hygiene and package-related applications, especially vaccination and economic recovery, which are all contributing to PP demand. But there is also growing uncertainty following a new and more aggressive wave of COVID-19 in Asia, especially India.

North America: Hurricane season may exacerbate supply constraints

In the second half of the year, the key issues in the US PP market mainly include strong demand, tight supply and the upcoming hurricane season. As supply and demand remain out of balance and raw material monomer prices rebound, local PP prices are likely to rise further.

China PP resin demand in the United States is strong, and supply is increasing at the same time. Under normal circumstances, its Chinese demand can be better met, and it will maintain a low level of US PP exports this year. Market participants expect that as the United States PP operating rate returns to normal in June, the current PP price or face lower pressure, the current rapid price rise situation may be alleviated.

However, from the past experience, because the U.S. PP industry is concentrated in the Gulf Coast region, the region is often affected by hurricanes from June to November each year, becoming an important uncertainty factor for the local PP market. In 2020, the United States Gulf Coast region has been significantly affected by two hurricanes, and many production plants have been forced to cut production, causing market volatility. In the second half of this year, North American market participants will still pay close attention to the weather changes in the Gulf Coast region and carefully manage inventory to avoid further supply reductions and continue to drive up PP prices.

Europe: Logistics issues difficult to ease

PP supply in Europe remains challenged by a lack of supply as a global container shortage limits the flow of imported goods from Asia. On the demand side, however, new demand will be injected into various segments of the service sector as the coverage of COVID-19 vaccines continues to improve across the continent, local epidemic prevention measures weaken and consumer behavior changes among residents. Of course, as the COVID-19 epidemic is still recurring, it is unknown to what extent demand in various sectors in Europe will recover by then.

In the first half of this year, due to strong demand for PP, European PP prices have hit a record high. In the case of supply shortage, the spot price of PP homopolymer in Northwest Europe rose 83% in April to 1,960 euros/ton. Market participants agreed that PP prices may have hit a ceiling in the first half of the year and will be revised downward in the future, but it still depends on the recovery of logistics. "If you look at pricing, the market has reached its peak, but there won't be a big drop in demand or pricing," said one producer.

Logistics issues will be the most critical uncertainty for the European PP market. Market players expect that for the rest of the year, the European PP market will need remedial measures for the global container shortage and efforts to keep the market balanced. Both PP resin producers and processors will take advantage of the traditional summer lull to boost stock levels in preparation for an expected pick-up in demand in the second half of the year.