US chemical profile: propylene

16 November 2012 16:02  [Source: ICB]

Propylene is mainly used to make polypropylene (PP), which accounts for nearly two-thirds of global consumption. Other outlets include acrylonitrile (ACN), propylene oxide (PO), a number of alcohols, cumene and acrylic acid.

US propylene prices rose sharply in the first quarter of 2012 as supply was constrained by a series of planned turnarounds and some unscheduled cracker outages. US contract prices reversed their uptrend in May, falling by a combined 25.50 cents/lb in May and June, pressured by stalled demand and lower energy prices.

The market regained some balance in the following months, trending slightly up at the end of the third quarter on the back of higher refinery-grade propylene (RGP) prices. US propylene demand in the fourth quarter is typically slower as a result of seasonal factors.

US propylene producers nominated increases of 5-7 cents/lb ($110-154/tonne) for November, potentially setting the stage for the third contract increase in as many months.

Polymer-grade propylene (PGP) contracts in October settled at 53.00 cents/lb, up 1.50 cents/lb from September, while chemical-grade propylene (CGP) contracts were at 51.50 cents/lb, also up by 1.50 cents/lb. In October 2011, PGP was at 64.00 cents/lb and CGP at 62.50 cents/lb.

The push for higher contract prices in November stems from increased spot prices for PGP and RGP during October. RGP accounts for 60% of the US propylene market.

RGP spot prices rose by 20% in October, ending the month at 51 cents/lb, amid a drop in inventory levels and some refinery disruptions caused by Hurricane Sandy.

The increase in RGP prices lent support to PGP, the price of which rose by 14% to 57.25 cents/lb at the end of October.

US propylene contracts normally settle at the beginning of the month being negotiated. The US contract is typically priced around 2.50 cents/lb above spot prices.

Propylene comes in three grades: polymer grade (99.5% minimum purity), chemical grade (93-94% minimum purity), and refinery grade (60-70% purity).

Propylene is made as a by-product of steam cracking of liquid feedstocks such as naphtha and liquefied petroleum gas (LPG), as well as off-gases produced in fluid catalytic cracking (FCC) units in refineries. It is also made via on-purpose technologies such as propane dehydrogenation (PDH) and metathesis.

The US propylene market is likely to remain snug to tight for the foreseeable future as light feedstocks will continue to account for most of the feedstocks used in the US. Light feeds, such as ethane, now represent nearly 90% of the feeds used by US crackers. Ethane itself, which yields negligible amounts of propylene, accounts for 60% of the total feedslate.

While steam crackers supply only 40% of the propylene used in the US - with the rest coming from refineries as a co-product of gasoline -- the outlook on the refinery side also points to constrained supply because of weaker gasoline demand.

US gasoline consumption in 2011 fell by 3% from 2010, while demand is down by 6% from 2007, a year that many consider to have been the peak for gasoline consumption in the US.

US propylene supply could loosen after 2015 when a 750,000 tonne/year propane dehydrogenation (PDH) plant is scheduled to start up production. Four other PDH units, with at least 1.8m tonnes/year of combined capacity, are expected to launch production in North America over the next few years.

By: William Lemos
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