Polymers: PP prices slip in US and Mexico

01 November 2010 00:00  [Source: ICB]

Softer demand and inventory stocking led to price reductions, though buying activity is expected to pick up in new year

Polypropylene (PP) prices in the US and in Mexico declined in early October as producers sought reductions.

US PP homopolymer spot prices for export were bid lower, traders said on October 15. However, producers were said to be taking a cautious approach to selling as they assessed recent price ­increases in Asia.

US PP producers were reportedly getting bids for PP injection homopolymer at 58-60 cents/lb ($1,279/tonne, €908/tonne) FOB (free on board) in railcars. Export prices for bagged PP homopolymer were at 67-69 cents/lb FOB in mid-September, as assessed by ICIS.

As October unfolded, producers intensified their push to clear inventory through export channels. Injection/raffia homopolymer trades were heard in a range of 56.5-60.0 cents/lb FOB. Meanwhile, prices below 60 cents/lb FOB were said to be offered in Latin America, according to market sources.

Meanwhile, US PP contract prices fell by 1.50 cents/lb in ­October, following the downward settlement in the feedstock propylene contract.

"Demand in North America for PP was in good shape through most of August and into September. People were concerned about the cost of feedstock increases and potential price ­increases. They were also concerned about the potential for a hurricane hitting the US Gulf Coast and affecting supply capability. Everyone was therefore loading up," said Bruce Petersen, president of US-based Polymer Consulting Services.

However, from September to October, the situation looked different. "The things market players were worried about didn't happen. There were no big hurricanes that affected supply, and the price of oil didn't quite shoot up as much as they expected. As a result, everybody is extremely cautious right now about buying. They're really trying to reduce their inventories," Petersen said.

Petersen does not expect the downward pricing shift to last long, however: "Shifts like this last only for a few months, and these markets can turn very rapidly. There is a general expectation that there will be more shifting between now and the end of the year."

In addition, the PP market is entering the season when demand has historically been weaker, owing to holidays and plant shutdowns. But the market generally revives in the early part of the new year, Petersen said.

In Mexico, the country's sole PP producer, Indelpro, reduced the prices for all grades of its PP by 1.5 cents/lb, which falls in line with a similar reduction in feedstock propylene.

With the price reductions, domestic prices were in the range of 79-82 cents/lb FOT (free on truck) for homopolymer raffia and injection PP, as assessed by ICIS.

Meanwhile, with propylene prices being talked about as going lower for November, further price reductions may be in store for PP in Mexico, where demand was softer in October because buyers held off purchasing while waiting for prices to fall. Demand from Central America and the Caribbean was also softer in October.

Supply remained tight at the Mexican-US border, but product was said to be available. Prices at the border were in the range of 58-62 cents/lb DAF (delivered at frontier) bulk Laredo, Texas. That was deemed slightly lower in the week ended October 22 on improved supply and aggressive pricing by producers, as assessed by ICIS.

In southeastern Mexico, conditions were said to be improving with the advent of drier weather, but that did not ­affect domestic distribution. Land exports to Guatemala and other Latin America countries experienced some disruptions, according to industry observers.

Operating rates for PP in North America are expected to be somewhere around the mid-80% level over the next year or so, according to Petersen.

Compared with last year, North American PP lost ground in ­exports to other polymers such as polyethylene (PE) and polyvinyl chloride (PVC), which have better cost positions.

"That is certainly going to continue," Petersen said.

North American PP capacity is expected to be in excess of 20bn lbs (9m tonnes) in 2011, according to some ­industry sources.

US-based PetroLogistics launched production at its $300m (€218m)propane dehydrogenation (PDH) unit in Houston, Texas, the company said on October 22. The new unit is expected to run at capacity within 30 days of start-up.

PetroLogistics' PDH plant is the largest of its kind in the world, boasting a capacity of approximately 1.2bn lb/year (544,000 tonnes/year) of propylene production. The plant, which is also the first of its kind, is able to convert propane into propylene - a technology that could potentially relieve dependence on crude oil for propylene and downstream derivatives production.

"This is a well-proven technology," Petersen said. "In the world of PP production, the feedstock propylene that comes out in a normal refinery cracker is a by-product when ethylene is produced. "However, much ethylene production for decades has been skewed toward using lighter feedstocks. That's even more skewed now, and is going to remain that way, due to availability of shale gas in the US/North America."

Natural gas prices are relatively low compared with crude oil. As a result of the shift towards lighter feedstocks to make ethylene, the cost of propylene is being pushed up.

"It's come to a point where, even though these propane dehydrogenation units are very expensive from a capital standpoint, the margins that they are expected to return are more than worthwhile given the relative disparity ­between crude oil and natural gas," Petersen said.

The PDH plant offers the advantage of flexibility. Its splitter is capable of producing varying ratios of chemical grade propylene (CGP) and polymer grade propylene (PGP), according to PetroLogistics.

The initial mix will be more CGP, as that represents the biggest supply deficit from North American light feed crackers producing ethylene, the company said.

It was reported that market sources expected the start-up to reduce the spread between RGP and PGP, currently at 10 cents/lb, which is up from a historical average of 4-5 cents/lb, as assessed by ICIS.

RGP for October was traded at 46 cents/lb for pipeline delivery during the week ended October 22. It was also traded at 45.25 cents/lb, but for railcar delivery, according to market sources.

In comparison, PGP for October was offered earlier in the week ended October 22, at 55.25 cents/lb, as assessed by ICIS.

The gap between RGP and PGP had begun to widen in the first quarter of this year, climbing past 20 cents/lb thereafter on the back of strong PGP demand, as assessed by ICIS.

The outlook for US propylene in November is expected to weaken further with the start-up of ­PetroLogistics' PDH plant, as PGP spot prices, which have softened in recent weeks, will probably continue to fall, market sources expected.

US PGP contracts in October settled at 58.50 cents/lb, down by 1.50 cents/lb from September, while CGP contracts fell to 57.00 cents/lb, also a 1.50 cent/lb drop, as assessed by ICIS.

Contracts were predicted to decrease by 2-4 cents/lb in November, ­according to market participants. It was expected that US producers would unveil nominations for November at the end of October.

Propylene inventories in the US decreased by 1.6% during the week ended October 15, despite higher operating rates at US refineries, according to data gathered from the US ­Energy Information Administration.

Additional reporting by George Martin, David Barry and William Lemos in Houston

By: Feliza Mirasol
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