US September PP contracts roll over on flat propylene

26 September 2013 22:57  [Source: ICIS news]

US Sept PP rolls overHOUSTON (ICIS)--US polypropylene (PP) contracts for September settled flat compared with the previous month, tracking a flat settlement of propylene contracts, although a few buyers may have seen 2 cent/lb ($44/tonne, €33/tonne) margin increases over the monomer, market sources said on Thursday.

After the rollover, US PP contract prices for September were at 81-83 cents/lb DEL (delivered) for homopolymer-injection and raffia-grade material for medium- to small-volume buyers, as assessed by ICIS.

Even as some producers have said that they have been able to obtain a 2 cent/lb margin increase over polymer grade propylene (PGP) with some of their buyers as far back as August, most buyers consulted have said they have not seen changes in their PP contract pricing, which is based on a formula that fluctuates only as much as propylene prices do.

US September propylene contracts reached a full settlement at a rollover, as assessed by ICIS on 5 September.  

“There was more success in getting a 2 cent/lb margin increase over monomer in August than has been reported,” one source from the sell side had recently said. The source added that in September those same efforts for the 2 cent/lb margin increase continued with success, mostly focusing on those buyers who had not agreed to that margin increase in the previous month and who were more likely to accept it.

Producers said that at current levels, a margin of about 10-12 cents above monomer is not enough to bring profit and that they need a minimum 14 cent/lb margin to generate enough earnings that would allow future investment to expand PP production capacity.

Buy side sources, meantime, have resisted the increase and have had success particularly if they have relatively high volume orders or if they are purchasing other resin like polyethylene (PE) from the same supplier.

“It is not that they are not making a profit but it is true that margins for PP are much lower than those for polyethylene,” one buying source said.

Producers such as ExxonMobil, LyondellBasell and Total are likely to increasingly improve their chances to increase margins by the end of the year, sources said. Unlike two years ago, when PP producers had plenty of excess capacity, PP inventories will get tighter as running capacities reach the high 80% range, one source added. In addition, most contracts based on formula-based pricing will expire by year-end.

PP demand is expected to improve along with the US economy. While production capacity is still adequate to service current demand, eventually more capacity could be needed, one source said.

However, for the coming weeks some buy side sources expected that if there are any pricing changes, they should be downward. “There are no hurricanes in the US Gulf coast nor any supply issues,” one source said. Buy side sources have also pointed to some weakening of spot propylene pricing this month compared with August. The weakening occurred after the unusually early propylene settlement, a source noted.

The only situation that could impact monomer supply is a maintenance expected to start late this month at PetroLogistics propylene plant in Houston.

In addition to ExxonMobil, LyondellBasell and Total, other major North American PP producers include INEOS, Formosa Plastics, Braskem Americas, Pinnacle Polymers, Phillips 66 and Flint Hills Resources.

($1 = €0.74)

By: Renzo Pipoli
+1 713 525 2653

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