US Aug propylene contracts expected to increase on tight supply

07 August 2013 20:16  [Source: ICIS news]

US Aug propylene contracts expected to increase on tight supplyHOUSTON (ICIS)--US August propylene contracts are expected to move higher in-line with nominations, sources said on Wednesday.

Nominations for August propylene contracts were heard at an increase of 3.5 cents/lb ($77/tonne, €58/tonne) and an increase of 4.0 cents/lb.

This would put August propylene contracts for polymer-grade propylene (PGP) at 68.5 or 69.0 cents/lb and August contracts for chemical-grade propylene (CPG) at 67.0-67.5 cents/lb.

Sources said recent spot trades of PGP as high as 66 cents/lb in August are lending support to the full amount of the nominations being accepted.

The recent increase in spot prices has been mostly fuelled by tight supply and increasing feedstock costs.

Sources said US producer Chevron Phillips Chemical has declared force majeure on propylene and is allocating sales at 70%.

Also, Williams Olefins’ Geismar cracker in Louisiana remains down after a fire and explosion on 13 June.

Production of refinery-grade propylene (RGP) has also been declining, as US refinery operating rates have fallen by almost 2 percentage points in the past four weeks as of 2 August.

Propylene prices have also been moving up because of higher costs for naphtha and propane, key feedstocks for US crackers that make propylene.

Paraffinic naphtha prices have gained $74.50/tonne since the end of June, while propane prices have gained 12 cents/gal in the same timeframe.

The higher feedstock costs are mostly tied to an increase in crude oil futures, supported by supply concerns and a continued strong stock market.

Sources said they are concerned that the run-up in propylene prices could be short-lived as prices above 70 cents/lb tend to cause demand destruction.

There is also some speculation that propylene supply is not as tight as some think and that the current rally is slightly overdone.

Major US propylene producers include Chevron Phillips Chemical, ExxonMobil, LyondellBasell, PetroLogistics and Shell Chemical.

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

($1 = €0.75)

By: John Dietrich

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