US propylene prices will continue to rise: consultant

11 May 2011 15:48  [Source: ICIS news]

LONDON (ICIS)--Record US propylene prices are likely to increase further as structural changes in feedstock use and refinery output mean overall supplies of the product have been cut by about 25%, a consultant said on Wednesday.

Last week, US propylene contracts for May began to settle at an increase of 9.5 cents/lb ($209/tonne, €146/tonne), rising by 11% from the record settlement of April, according to ICIS. The initial settlement put chemical-grade propylene (CGP) at 95.50 cents/lb.

As the price differential between oil and natural gas has widened in the US, more cracker operators have switched from naphtha to ethane feedstocks. 

At the same time, propylene from refineries is being fed into the gasoline pool, as high gasoline prices mean there is no incentive for refiners to sell it into petrochemicals, according to Bob Bauman, of US-based Polymer Consulting International.

The resulting 25% cut in overall availability means there is not enough of the feedstock to meet domestic production requirements, let alone supply future demand growth.

How much further prices can be pushed depends on the ability of derivatives to pass on these costs through the supply chain.

“Products such as acrylic acid can afford to pay more for propylene than products such as polypropylene (PP), due to the final end-use pattern and the ratio of propylene per pound of product produced,” he said.

Product substitution is only possible for about 12% of the PP market, he added, where high ­density polyethylene (HDPE), polyethylene terephthalate (PET), polystyrene (PS) or even paper can be used. The other 88% of the market cannot switch because of performance requirements.

This includes applications such as automotive, biaxially oriented polypropylene (BOPP) and carbonated beverage bottle caps, according to Bauman.

Boosting production of propylene by cracking propane or other on-purpose production is not a simple solution to the propylene shortfall.

Many US cracker operators, such as Netherland’s headquartered LyondellBasell in Houston, have the ability to crack propane and butane. But cracking these products is more expensive than ethane, as there is competition for other uses.

“Cracking these products also produces pygas, some aromatics and other by-products which have to be managed in a cost-effective manner,” Bauman said.

On-purpose production through propane dehydrogenation (PDH) is another option, but it would be 2014 before any new build could be completed. Another method, metathesis, relies on C4s (butadiene), which is also short.

Bauman said methanol-to-propylene (MTP) technology available from technology providers such as Germany’s Lurgi face issues of scale, capital costs and waste water disposal.

“This is truly a major structural change with no solution in sight in the short to medium term. There is a definite ceiling for the propylene price - but I do not know it and we are not yet there.

We are in totally new territory here, with no precedent. “How much can Ford or General Motors afford to pay for PP to produce the car? How much can a cigarette manufacturer afford to pay for BOPP film used on every pack? Probably much higher than the price is today,” he said.

For more on propylene visit ICIS chemical intelligence

By: Will Beacham
+44 20 8652 3214

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