April 1, 2015 • Posted in Market Insights

Can A Marketing Operating At 88% Be Sold Out?

Capacity utilization in polypropylene and polyethylene is widely reported on a simple calculation of annualized production as reported by producers to the ACC (American Chemical Council) divided by the industry’s nameplate capacity.  In the case of polypropylene this number currently reflects an operating rate of a little over 88%.  Simple math would tell you that if those were the only two factors involved there would be as much as 2 billion pounds per year of polypropylene readily available for sale. Like most things, it’s not that easy.

Recently, one of M. Holland’s leading polypropylene suppliers outlined the factors which have a significant impact on actual capacity and thus availability at any moment in time

Four factors have a negative, and varying, impact on the actual polypropylene available for sale from U.S., Canadian and Mexican plants.

  • Unplanned Reliability Issues: these outages which by their very definition are unexpected are estimated to take out as much as 6% of industry capacity in any given year. In 2014 this would have removed over 1 billion pounds from the merchant market.
  • Planned Plant Turnarounds: These periodic and necessary shutdowns to perform routine, and sometimes more than routine, maintenance to uphold the high safety standards of the industry can take an individual production line or an entire site down anywhere from a few days to over four weeks depending on the amount of work to be done. Shutdowns related to planned outages subtract close to 400 million pounds of capacity per year.
  • Commercial Mix: if polymer plants ran only one high melt product with minimal additive requirements 365 days per year life would be a whole lot simpler and capacity would be a whole lot closer to nameplate. Low melt and other products that run at other than optimum rates negatively impact line speed as much as 30%. Estimates are that production of these products subtracts another 400 million pounds from the market.
  • Structural Feedstock Loss: another 250 million pounds can be subtracted on an annual basis because of basic feedstock (propylene, ethylene, etc.) or additive outages and dislocations

Include all these factors on an annual basis and industry capacity can be reduced from just over 19 billion pounds per year to below 17 billion pounds per year. If we then take ACC production figures for 2014 of approximately 16.5 billion pounds this equates to an actual operating rate of over 97%.

It bears mentioning that the polyethylene operating rate as reported by the ACC in February was over 94%? You can assume many of the above factors impacting polypropylene have a similar impact in determining real polyethylene capacity.

Just like the old adage that prices rise “because they can”; capacity is available “when it is”.

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