The state of the Asian polypropylene market

Jan. 7, 1998 The Asian supply and demand balance for polypropylene (PP) is expected to tighten as the year 2000 approaches. The perceptibly altered tone of the region's economy has precipitated setbacks for a number of new PP investment projects, to the extent that demand growth will likely outstrip planned increases in output. Industry sources are saying that only three new projects have a strong chance for realisation in 1998 and 1999. This would expand the scope of production capacity by about 600,000 tons, the sources expect. The situation is not an unfavourable one for Japanese PP makers. Still, future trends remained obscured by the possibility that excessive investments could be re-ignited should Asia's economy rebound in several years' time.
At present, aggregate PP demand in Asia (including India) stands at an estimated 9 mm tpy. Total production capacity, on the other hand, is between 9.5 mm-9.6 mm tpy, indicating that demand is nearly in balance with supply. Since 1996, however, a series of capacity expansion projects have been completed in South Korea, Singapore, and the Philippines, and early this year several new plants are scheduled to come onstream. This scenario threatens to loosen the supply-demand equation for the time being.
Nonetheless, Japanese PP makers are predicting that in the short term, PP demand will grow at about 5.5 % per year even after factoring-in the slowdown in Southeast Asia's economic growth. In volume terms this rate would translate into an annual increase of 500,000 tons. Meanwhile, if the additional capacity from the three projects likely to be realised over the next two years is limited to 600,000 tons, supply and demand would be virtually in balance by the end of 1999 and require 100 % plant capacity utilisation.
The three projects above consist of one each in Taiwan, Malaysia, and Indonesia. All three are slated for completion in 1999.
The Taiwan project is a 300,000 tpy PP plant that will form one link in Formosa Plastics Corp.'s (FPC) downstream derivatives business. The facility will be fed from a 350,000 tpy ethylene plant currently under construction. Upon completion the project will boost Taiwan's aggregate annual PP output capacity to 800,000 tons.
In Indonesia, Trans Pacific Petrochemical Indotama (TPPI) has drawn up plans for a 200,000 tpy PP plant also as a downstream business in the company's 700,000 tpy ethylene project. And in Malaysia, Titan Himont Polymers recently placed a plant order that will double its existing PP capacity of 120,000 tpy.
The situation differs markedly in Thailand, the epicentre of Asia's currency problems. A management crisis reportedly has forced Thai Petrochemical Industry (TPI) to suspend construction in progress of a 250,000 tpy facility. Thailand has ASEAN's largest PP production capability at 800,000-850,000 tpy, a level likely to remain unchanged for the duration of this century.
In South Korea and the Philippines, meanwhile, new plants are primed to come onstream early this year. South Korea's 160,000 tpy facility is being built by Hyundai Petrochemical Co., while in the Philippines, J.G. Summit Petrochemical centring on the Gokongwei group is installing a 180,000 tpy unit. The latter will mark the Philippines' second PP facility following the 160,000 tpy unit fired up last June by Petrocorp, bringing the nation's total annual PP capacity to 340,000 tons.
A look at Asia's PP supply and demand by country shows that with the exclusion of Singapore, which has traditionally relied on exports, the most striking gap between domestic demand and supply capability is South Korea's. The nation's total production capacity, including that from Hyundai Petrochemical's new plant, is roughly 2.4 mm tons. By contrast, actual domestic demand in 1996 was only 850,000 tpy. South Korea's export ratio has therefore exceeded 50 % of its output capability and this has had a major impact on Asian PP market prices. South Korea has since been reining-in its petrochemical investments, and according to one local petchem maker, no additional expansion is foreseen before the end of the century.
China, meanwhile, is considered to have the largest latitude for absorbing PP supplies reflecting projections that its swift demand growth will continue. Industry estimates put China's current PP output capacity at 1 mm-1.5 mm tpy. Demand, on the other hand, is said to rival Japan's at about 2.5 mm tpy. The shortfall is supplied through imports. Sources close to the industry say that China's PP demand will likely maintain an annual growth rate of about 8 %, yet they anticipate no major supply increases. This means that China will have to expand its imports further.
PP is used in a wide array of applications, including auto parts, industrial materials, and sundry goods. From an environmental standpoint, PP demand is growing as a substitute for PVC as well. And while PP is undergoing intense technological innovation and its future growth potential is immense, worldwide players such as Montell with a staggering 3.5 mm tpy production capacity for a single company are stepping up their offensives in global markets using economies of scale as a weapon.
Taking Asia in isolation it would appear that PP supply and demand will maintain parity for the time being. Yet intensifying global competition is inevitable. The number of Japanese PP makers has been halved to 7 over the past few years through alliances and other means. The industry is attempting to further strengthen its competitiveness by rectifying business practices and adjusting prices. But companies still face the need for structural reinforcements.