US propylene producers seek hikes of up to 14% for February

28 January 2010 17:29  [Source: ICIS news]

Propylene prices may riseHOUSTON (ICIS news)--US propylene producers have nominated increases of up to 14% for February contracts, market sources said on Thursday, attributing the initiatives to tight supply amid low refinery operating rates.

The nominated increases heard are for 6 cents/lb ($132/tonne, 94/tonne) and 8 cents/lb. US polymer-grade propylene (PGP) contracts for January settled at 57.00 cents/lb, up by 3.00 cents from December, while chemical-grade propylene (CGP) settled up 3.00 cents at 55.50 cents/lb, according to global chemical market intelligence service ICIS pricing.

The proposed increases for February contracts would extend an uptrend that began in November, when contracts started to climb on the back of tight supply of refinery-grade propylene (RGP), the main feedstock for higher-purity US propylene production.

Spot RGP has also been rising, with a February trade done at 55.25 cents/lb on Wednesday - a hefty 18% higher than spot levels a month ago.

US refineries ran at 78.4% of capacity in the week ended 22 January, steady with the prior week but down from 82.5% a year earlier, according to data from the Energy Information Administration (EIA).

Refiners have been operating at low rates because of squeezed margins caused by weak gasoline demand and relatively high inventories.

Analysts have warned that some US refineries will need to close before the sector can reach a balance between supply and demand, especially given the long-term trends towards greater fuel efficiency and increased use of bio-fuels.

Some plants are already up for sale, and the refinery woes could affect related petrochemical plants.

Propylene supply has also been tightened by the steady shift in recent years towards lighter feedstocks, which means US Gulf crackers produce more ethylene and less co-product propylene.

That shift has been driven by a desire to take advantage of the relatively low cost of natural gas, which in US markets has lagged the rise in oil values from the lows seen in early 2009.

Chevron Phillips Chemical, Enterprise Products, ExxonMobil, LyondellBasell and Shell Chemical are among the major US producers of PGP and CGP.

Dow Chemical, INEOS, Ascend Performance Materials and Total are among the main buyers.

($1 = €0.71)

For more on propylene visit ICIS chemical intelligence
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By: William Lemos
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