US propylene for Jan surges 28% after drawn-out settlement

14 January 2011 17:59  [Source: ICIS news]

A LyondellBasell facility in Channelview TexasHOUSTON (ICIS)--US polymer grade propylene (PGP) contracts for January surged by 28% after a drawn-out settlement process split the market on the chemical grade (CGP) side and widened the spread between the two grades to an unprecedented level, market sources said on Friday.

According to sources, the market reached an agreement for increases of 17.00 cents/lb ($375/tonne, €281/tonne) for PGP and 15.00 cents/lb for CGP, an unusual settlement considering CGP and PGP normally rise or drop by the same amount.

“I have not seen anything like this before. I thought PGP and CGP always moved together,” a market participant said.

The settlement put PGP in January at 77.50 cents/lb and CGP at 74.00 cents/lb.

But another wrinkle in the January settlement process was that some CGP contracts settled at 70.00 cents/lb, based on an early settlement by one producer that was promptly rejected by its rival suppliers.

The early settlement, which included an 11.00 cent/lb increase for January and a rollover for February, surprised the market as it involved a two-month deal- which was highly unusual for US propylene, and followed proposed increases of 14.50 cents/lb and 15.00 cents/lb for January.

Another layer of complexity was added when a producer - which had originally sought the 14.50 cent/lb increase - boosted its initiative to 20.00 cents/lb, while news of the 11.00 cent/lb settlement was circulating in the market.

The settlements in January created a three-tiered contract market, something an industry veteran said had never happened in the propylene market.

A contract spread of 7.50 cents/lb between CGP and PGP was also unprecedented, another source said.

US propylene contracts were widely expected to rise in January, following a 42% surge in refinery grade propylene (RGP) spot prices in December.

Market sources pointed to tight supply and cracker outages as the drivers behind the increase in the spot market, including a disruption at Shell’s GO-1 Norco cracker in Louisiana in December.

A recent outage at Dow’s St Charles cracker in Louisiana further strengthened propylene prices, sources said, also citing RGP inventory building ahead a heavy refinery turnaround schedule.

RGP ended December at 68.00 cents/lb, up from 48.00 cents/lb in the last week of November.

The product traded this week at 72.00 cents/lb.

PGP spot prices also surged in December, gaining nearly 13 cents/lb after trading at 58.25 cents/lb in the last week of November.

Spot PGP was last heard traded at 78.00 cents/lb on Thursday.

Major US producers of PGP and CGP include Chevron Phillips Chemical, Enterprise Products, ExxonMobil, LyondellBasell, Petrologistics and Shell Chemical.

The main buyers include Dow Chemical, INEOS, Ascend Performance Materials and Total.

($1 = €0.75)

For more on propylene visit ICIS chemical intelligence
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By: William Lemos
+1 713 525 2653

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