08 February 2012 18:45 [Source: ICIS news]
HOUSTON (ICIS)--US propylene contracts for February began to settle on Wednesday at an increase of 16.50 cents/lb ($364/tonne, €273/tonne), up by 30% from January, on support from a surge in spot prices last month.
The initial settlements put polymer-grade propylene (PGP) contracts at 72.50 cents/lb and chemical-grade propylene (CGP) at 71.00 cents/lb.
US producers had originally nominated increases of 17 and 22 cents/lb for February, but one source said suppliers agreed to a smaller increase to avoid demand destruction.
"A 22 cents/lb [increase] would kill all the February demand," a market participant said.
But the 16.50 cent/lb rise is still triggering concerns of an impact downstream.
"This will definitely impact demand as Asia will once again have a huge advantage on polypropylene [PP] pricing," a PP buyer said, predicting the spread between prices in the US and Asia will open the door for shipments of finished goods into the US.
"This will negatively affect PP demand over here," the source said.
A distributor said PP buyers in the US would likely try to weather the increase by holding off buying resin amid hopes that the increase is a one-month spike and that prices will decline in March.
"Imports are always an option but by the time stuff gets here and is debagged or converted to bulk, the domestic price may have come down enough to buy here again," the source said.
A substantial propylene contract increase for February had been expected, after refinery-grade propylene (RGP) prices rose by 30% last month on the back of higher alkylation values.
Alkylation values can affect the price of propylene because refiners can use RGP to make alkylate in gasoline or sell it as a feedstock to the chemical industry, depending on which side pays more for the product.
Alkylation levels, which rose by 60% in January, were assessed at 68 cents/lb on Friday. Last week, RGP deals were done at 63 and 64 cents/lb.
RGP for February was offered on Wednesday at 70 cents/lb with no bids. The product began January trading at 39.50 cents/lb, but ended the month at 64 cents/lb.
The increase for propylene in February followed a flat settlement in January, which market participants had predicted was the bottom for US the market, after a sharp downtrend in the fourth-quarter of 2011.
US propylene contracts usually settle at the beginning of the month being negotiated.
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)
Additional reporting by Michelle Klump
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