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August 20, 2020

Propylene demand likely to rebound amid improving macro-economic environment

By GlobalData Energy

The Covid-19 pandemic has created economic disruption leading to downfall in demand for petrochemical products, including propylene and its derivatives. Companies have responded either by lowering operating rates or closing production units, in response to low demand environment. Supply chain disruptions and labour shortages has affected the Under-Construction / Commissioning Projects. Companies are likely to work closely with contractors and suppliers to develop revised project timelines. They might consider a wider range of scenarios and factors such as pace of global economic recovery and propylene market conditions that are likely to aid decision-making in the near future.

The current challenging market environment has forced major propylene producers to trim capital expenditures for 2020 by almost a quarter on an average, as an immediate and proactive measure. Capital expenditure of majority of companies is expected to remain under continuous review and capex guidance for 2021 and beyond. Projects under initial phases of development (FIDs) foresee postponement, as companies are likely to re-evaluate investment strategies. Supply chain disruptions and labour shortages has affected the Under-Construction / Commissioning Projects. Companies would work closely with contractors and suppliers to develop a revised project timeline.

Propylene capacity additions are largely concentrated in Asia, majorly from China, which is targeting self-sufficiency to meet its existing and growing propylene demand. China is followed by India, Iran and the US, capitalising on growing demand and leveraging feedstock advantage.

Propylene is among the largest produced petrochemicals and has seen steady growth over the years. It is expected to grow at a healthy 2.6% CAGR over the decade. Companies would undertake disciplined approach to deploy capital, including postponement or slowing down of selected growth projects, altering shutdowns, etc. Companies are expected to remain optimistic on fundamentals of propylene industry over the medium-long term and are likely to pursue ongoing/new investment opportunities accordingly, for their competitiveness and growth.

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