US PGP keeps wide spread over RGP on splitter constraints

02 March 2010 22:56  [Source: ICIS news]

HOUSTON (ICIS news)--US polymer-grade propylene (PGP) continued to maintain a large premium over lower-grade refinery-grade propylene (RGP), lifted by firm demand and limited splitter capacity, market sources said on Tuesday.

Spot PGP was bid on Tuesday at 66.00 cents/lb ($1,455/tonne or €1,077/tonne) while RGP bids were at 54.75 cents/lb, with neither product attracting offers, according to global chemical market intelligence service ICIS pricing.

“There is plenty of RGP but from what I understand splitter capacity is maxed,” a market participant said, referring to the process used to transform RGP into higher-grade PGP.

PGP usually trades at a premium of 4.00 cents/lb over RGP, but that spread soared past 10.00 cents/lb in early February, when a PGP deal was heard at 66.25 cents/lb while RGP traded at 54.00-55.00 cents/lb.

While some sources alluded to a possible isolated deal, one player predicted the wider spread was likely to continue, citing lack of splitter capacity.

That was confirmed by subsequent deals. PGP went on to trade as high as 67.00 cents/lb in the following weeks, whereas RGP remained steady at 54.00-55.00 cents/lb.

Market participants have also pointed to a drop in propylene production from steam crackers, resulting from the increasing use of lighter feedstocks in the US, as a factor supporting the wider spread.

Light feedstocks, which yield far less propylene than naphtha or gasoil, account or around 80% of US cracker feeds.

Although market fundamentals seem to indicate continued support for US propylene prices in the coming months, sources said the expected start-up by mid-year of a propane dehydrogenation (PDH) in Texas could take some pressure off the market.

The plant, which is owned by Houston-based Petrologistics, will convert propane into propylene and will be the largest PDH plant in the world, the company said on its website.

A Petrologistics official did not immediately respond to a request for comment.

($1 = €0.74)

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