The Price of Polypropylene Raw Materials Continues to Increase

 

Throughout an unpredictable 2020, the resin market experienced a bit of whiplash, marked by rapidly changing prices and a shortage of materials. This impact to supply and demand only got worse after a fire tore through a Texas Total Petrochemicals facility in mid-December.

As a result, the price of polypropylene (PP) materials is on the rise across the country, with Plastics Today reporting that PP prices topped out at $0.29/pound in December. That marked an increase in $0.05/pound.

And now with winter storms impacting refineries on the Gulf coast, we are likely in for more increases in the coming weeks…

Industry Structure

Some basic background information may be helpful here. Polypropylene is a by-product of petroleum refining, and is therefore intimately tied to production driven by demand for other products. Historically, this market is one that is more oriented towards “on-demand” supply, meaning products are produced as they are needed and there is not a lot of inventory carried.

In 2020, with much of the country off of the road, demand for gasoline was down dramatically. On the flip side, consumer goods products – and their plastic (polypropylene, polyethylene, etc.) packaging – increased substantially as everyone shopped from home. Combining these two aspects with the fact that there were little-to-no inventories carried to bridge this supply/demand imbalance, and you get the largest price spikes ever seen in the market.

What’s Else is Causing Supply Shortages?

To start off 2021, the resin market is facing nearly unprecedented issues in meeting demand. In addition to the Total Petrochemicals fire, at least 5 major producers are facing production challenges, leading some of them to declare force majeure in their contracts.

Additionally, soaring ocean freight costs have lowered the incentive to bring in more cargo for production.

Expected Changes in 2021

The high PP prices we saw this past December are only expected to get worse now that we’re in 2021.

A January 13 report states that PP prices increased by $0.04 during the second week of January, and market experts predict that prices will continue to rise during the early part of the year, this time by double digits.

Even with the soaring prices, manufacturers are still scrambling for materials. Fortunately, some relief may be in sight.

Repairs are going well at the damaged Total Petrochemicals facility. According to a recent report, shipments should resume the first week of February, and the plant should be back to a normal production schedule in early April.

With a capacity of 1.15 million mt/year of PP, this should greatly help aid in the increased demand for the material.

 

Here at Acadian, we understand that this PP supply and demand issue greatly impacts your businesses. We’ll continue to keep an eye on changes in the market and report back here with new information as it becomes available.