PP most likely plastic to shift in 2026

Polypropylene is often overlooked or maligned in the recycling space, but geopolitical events have brought the polymer closer to the forefront even as most industry attention focuses on the bigger PET and HDPE sectors.  

PP producer LyondellBasell said during an earnings call on May 1 that 70% of global virgin PP capacity is affected by the Iran war, versus 20% of virgin PE capacity. As a result, LyondellBasell expects greater price increase potential for PP than for PE in coming months, and for North America to shift from net importer of PP to net exporter in 2026.

Executives at Michigan-headquartered Dow noted in their own earnings call April 23 that existing weakness in the downstream automotive and appliance sectors had tempered price spikes for PP.

PureCycle CEO Dustin Olson was also bullish about PP’s future, saying supply is very tight and that the company expects that trend to continue. 

He added that Chinese customers are rapidly de-stocking virgin PP inventories amid war-related feedstock shortages, and said the arbitrage between the US and Asia “is either closing or closed or has reversed, depending on who you talk to.” 

Arbitrage

In commodity sales, an arbitrage or "arb" is open when the price for a product in one region is lower than in another, and selling it in a higher-priced market results in a profit.  

So cheaper PP resin from Asia would be sold into the more expensive US market, until or unless Asian prices rose above US pricing, enough to justify the added expense and risk of deep-sea freight.

While US virgin PP prices have increased by 25-35 cents/lb since March, in Europe and Asia they have risen by 35-55 cents, Olson said. 

In stark contrast with polyethylene, PP typically is consumed in the area where it is produced. North America features vast new PE capacity meant to exploit bountiful reserves of cheap feedstock natural gas liquids (NGLs including ethane) and ultimately export the resin. 

The North American NGL advantage

During an April 28 earnings call, executives at midstream energy provider Enterprise Products said the Iran war has dramatically increased demand for US energy, chemicals and refined products, and the subsequent spike in profit margins has incentivized domestic producers to run plants at full rates. Enterprise transports, stores and processes natural gas liquids, crude oil and other types of hydrocarbons. 

“International demand for US feedstocks is as strong as we have seen in quite some time,” said Jim Teague, co-CEO of Enterprise. “The loss of Middle East hydrocarbon supply fractured the Asian supply chain.” 

Dow executives echoed the sentiment, saying they expected Q2 PE operating rates to exceed the Q1 average of 88%. 

Dow COO Karen Carter said that in contrast to Asia, where feedstock availability is limited, and Europe, where continued price increases will be required to justify additional production in the high-cost region, “the Americas continue to operate at high rates, highlighting the importance of Dow’s cost and feedstock advantages in the region.” 

The evolution of propylene

A cousin of sorts to ethylene, propylene historically was sourced from crude oil refiners. But with the North American shale gas boom in the late 2000s, propane dehydrogenation (PDH) units gained favor to take advantage of the cheap, abundant NGL. 

The PDH process removes hydrogen from propane to create on-purpose propylene, versus propylene as a co-product of fuel production, with higher yields than crude oil offers.

Amid the constrained supply of Middle East NGLs, China’s PDHs are operating at less than 50% of capacity, Teague said, leading to de-stocking of derivatives such as PP. 

PureCycle also sees opportunity in Asia. “Quite frankly, Asian customers are just very nervous right now,” Olson said. 

“They largely get their supply from China, but they’re not sure how long that will last or what the price will be, and there’s a lot of prepayment activity with that. And so they’ve been reaching across the aisle to us” and asking for exported R-PP now or an expedited approval process for when the planned PureCycle plant in Thailand starts up.

Teague said Enterprise expects the strong demand for hydrocarbons to continue through 2026 “and maybe into 2027.” 

But…

The main caveat for the recycling sector is that not all MRFs sort for PP, or at least not consistently, though sustained high pricing can provide a powerful incentive, at least temporarily. 

And more broadly, PP is used heavily in durable goods including automobiles, which have experienced flagging sales due to affordability and other issues including tariffs on imported autos and auto parts. According to the National Automobile Dealers Association, US light vehicle sales in April fell 7.1% year-on-year, the eighth consecutive monthly decrease. 

For the year, S&P Global Mobility projects that US auto sales will decline by more than 3% on the year, largely due to higher production and materials costs passed down to already financially stressed consumers. And OEMs are keeping lower vehicle inventories, adding to pricing pressure.

Ultimately, only time will tell how long the shifts in market fundamentals will last, and to what extent recyclers may benefit.