FocusArb opportunity to Asia looms as US propylene prices head south

30 April 2010 05:26  [Source: ICIS news]

By Chow Bee Lin

SINGAPORE (ICIS news)--The US to Asia arbitrage window for polypropylene (PP) is expected to open for June and July shipment with US PP export regaining competitiveness on the back of falling US propylene feedstock values, Asian traders said on Friday.

Driven by increasing supply, US refinery-grade propylene (RGP) spot prices have fallen by nearly 20 cents/lb ($440/tonne) since the beginning of April, which in turn had spurred expectation that US PP prices would fall in May.

US refinery-grade propylene (RGP) spot prices plunged to 39 cents/lb ($860/tonne) in the week ended 23 April, dropping by 18% from a week earlier due to softer demand and increased supply, according to global chemical market intelligence service ICIS pricing.

The drop in feedstock costs could lead to higher operating rates and export availability of PP, a source said.

However, for now prevailing PP prices in the US were uncompetitive in the Asian markets, but key global and regional traders had started testing the market with offers of injection and yarn grade PP at $1,360/tonne (€1,034/tonne) CFR (cost and freight) China, LC 90 days for shipment by mid June, the traders said.

In Asia, the benchmark PP injection and yarn grades were assessed at $1,310-1,380/tonne CFR China for the week ended 23 April, according to ICIS pricing.

Meanwhile, a trader was heard to have sold US injection or yarn grade at $1,360/tonne CFR Vietnam for June shipment, but this could not be confirmed.

Current US Gulf export offers for homopolymer and copolymer grades PP were said to be widely available around 62-65 cents/lb FOB (free on board) in railcar, which work out to above $1,450/tonne CFR China, with US-China freight estimated at $100/tonne, according to industry sources.

Some Asian traders said they were wary of a repeat of history as Asian resins prices fell dramatically in 2005 and 2006 when large quantities of US material were offered to China and southeast Asia at lower prices.

The prospect of more US PP flowing to Asia had already prompted some traders to off-load material at their bonded warehouses in Asia, they said.

“We bought 200 tonnes of US material from an Asian trader at $1,340/tonne CFR (cost and freight) China for prompt lifting at a bonded warehouse in east China,” a Chinese trader said.

A US trader sold Brazilian PP injection grade at $1,350/tonne CFR China, LC 90 days for prompt lifting at a bonded warehouse in east China, the Chinese trader added.

However, it was not immediately clear if the quantity of US material to be offered would be enough to push Asian prices down, the Asian traders added.

Major US PP producers include Sunoco, LyondellBasell, Dow Chemical and INEOS.

Additional reporting by David Barry in Houston

($1 = €0.76)

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By: Chow Bee Lin
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