17 January 2013 21:29 [Source: ICIS news]
US PP contract prices for January were at 84.00-87.00 cents/lb ?xml:namespace>
Much of the PP market has a monomer-based contract that follows the monthly polymer-grade propylene (PGP) cost. PGP prices settled higher at 73.00 cents/lb for December.
The price range widened to account for an additional 1 cent/lb of margin expansion that many producers were able to implement into 2013 contracts. Several buyers confirmed that they will see the additional penny starting in January, while others said they did not expect to see it until later in the year.
The increase was significantly more than most market participants had expected, with buyers and suppliers initially expecting a 3-5 cent/lb increase for the month.
"It is no way to run a business, no way to start the year off," said one PP distributor. "It just reinforces all of the negative connotations about the PP market that we started to get rid of the second half of last year."
While historically PP prices tend to rise in the first quarter of the year, the relative stability of pricing in the second half of 2012 led many market participants to expect similar stability going into 2013, sources said.
However, PGP spot prices skyrocketed during the first few weeks of the year, following several unplanned cracker outages, as well as a three-week shutdown at a Petrologistics propane dehydrogenation unit in
In 2012, when buyers were expecting a huge increase in prices, many built inventory ahead of the increases. That was not possible in this case, sources said.
"Everybody was stunned," said one market participant. "Nobody had a chance to get ready for it ... nobody was expecting it to go up this fast, this soon."
While high prices can sometimes have a negative impact on demand, sources said they did not expect demand to be affected significantly, because many buyers had low inventories heading into the new year.
"I think the inventory situation is probably fairly lean across the supply chain," said one buyer, who said it would not be cancelling any orders in January because it does not have any excess inventory.
Some buyers said they were starting to hear offers of PP material from overseas at cheaper prices than US material. While they agreed there are some logistics challenges, some buyers said they would consider purchasing material from Asia or the Middle East, given the high
Major North American PP producers include LyondellBasell, ExxonMobil, INEOS,
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