Plastics Industry Perspective 2nd Quarter 2015
PDH spells relief for polypropylene industry
The movement toward ethane crackers (natural gas-based) and away from naphtha crackers (crude oil-based) has put pressure on propylene sup-ply, driven, in large part, by the increase in hydraulic fracking in the U.S. The polypropylene
(PP) resin industry has been struggling with tight margins, loss of domestic and export competitiveness, and volatile pricing.
Therefore, entities have opted for on-purpose propylene production, or propane dehydrogenation (PDH), which potentially could spell relief for PP producers that have been dealing with declining utilization rates and an inability to increase margins. The PDH process creates an opportunity to change the dynamics of the PP industry and for operators to participate in low-cost shale gas.
Approximately 5.8 million metric tons of propylene capacity through PDH plants have been announced, with a majority set to come online by the end of 2018.
Recently, Formosa Plastics Corporation announced that it will build a new PP production line in Point Comfort, Texas; the company is constructing a PDH facility at the same location. This will be the first PP plant built in the U.S. in many years. Though Formosa may be the first to announce new PP capacity in the U.S., it is not expected to be the last. The Dow Chemical Co., for instance, and other known industry players are expected to build PP plants to capitalize on additional propylene supply derived from PDH. Most new plant investments in the plastics and chemical space have been tied to the production of ethylene or poly-ethylene resin.
Lower oil prices and in-creased global supply of propylene have helped U.S. PP producers recently. PDH propylene should enable U.S. PP producers to retain the current benefits of lower cost and better supply of monomer if crude oil pricing reverts closer to recent norms.
PDH and downstream PP investments are just other examples of the significant level of investments and changes occurring within the U.S. economy tied to fracking and shale gas.
Kevin Duffy is a Senior Inventory appraiser who specializes in the plastics industry. He
has appraised numerous plastics-related companies in North America that are involved
in distributing, compounding and manufacturing resins, films, sheets, and molds. Kevin
received his B.A. in finance from Illinois State University, and passed the CPA exam in
Illinois. Kevin has diverse business experience in
accounting, banking, manufacturing,
distribution, and retail.