UpdateUS propylene contract falls for first time this year

08 October 2009 18:13 [Source: ICIS news]

US propylene falls (Adds background in paragraphs 3-17)

HOUSTON (ICIS news)--US propylene October contracts plummeted by 10 cents/lb ($220/tonne, €150/tonne), as weaker demand and ample supply paved the way for the first monthly contract reduction this year, market sources said on Thursday.

The settlement puts polymer-grade propylene (PGP) at 47.00 cents/lb and chemical-grade propylene (CGP) at 45.50 cents/lb, according to global chemical market intelligence service ICIS pricing.

The drop in October followed eight monthly increases and a flat settlement in April.

US propylene demand began to falter in September, after a 12-cent/lb contract increase last month cut off derivative exports, sources said.

The sharp increase made it impossible for the US to ship products such as polypropylene (PP) and acrylonitrile (ACN), which had played a pivotal role to sustain US monomer demand in previous months.

The drop in demand was followed by a build-up in refinery-grade propylene (RGP) supply, a key feedstock used for higher-purity US propylene production.

Around 65% of PGP and CGP produced in the US in the first half of 2009 came from RGP, according to the National Petrochemical & Refiners Association (NPRA).

RGP can be used as a feedstock in the petrochemical industry but also as an alkylate in gasoline, depending on which market offers the best return for the product.

Alkylation values in September fell below what US refiners could get on the chemical side, and that led to an increase in RGP supply for propylene use, a producer said.

That increase pushed RGP prices sharply down in late September, making the case for US buyers to pursue a price reduction in October even though producers had nominated increases of 1-2 cents/lb for the month.

RGP was last heard offered this week at 40.00 cents/lb, after trading as high as 52.50 cents/lb in the third week of September.

Market conditions point to a flat outlook for US propylene prices for the rest of the fourth quarter, a buyer said.

Meanwhile, an ACN producer said the 10-cents/lb reduction would likely help exports.

“I don’t think it will help us move a lot of pounds, but there will be some pounds moved,” the producer said.

On the PP side, an exporter doubted the contract reduction would revive the market, but the source expected RGP prices to remain on a downtrend.

However, RGP would have to fall by an estimated 10 cents/lb below current offers to reopen the arbitrage for PP.

Chevron Phillips Chemical, Enterprise Products, ExxonMobil, LyondellBasell and Shell Chemical and are among the major US producers. Dow Chemical, INEOS and Total are among the main buyers.

($1 = €0.68)

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By: William Lemos
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