30 December 2013 20:00 [Source: ICIS news]
HOUSTON (ICIS)--With US propylene prices expected to start 2014 strong, there could be nowhere to go but down for much of the rest of the year.
US polymer-grade propylene (PGP) contracts are expected to gain 5-7 cents/lb ($110-154/tonne) in January 2014, tracking a surge in spot pricing.
This would put contracts in the mid-70s cents/lb to high-70s cents/lb, which has often been unsustainable.
This could lead to a steep decline in PGP contracts for the rest of the first quarter and most of the second quarter as buyers retreat from the market in an effort to push prices down.
However, propylene inventories remain well below year-ago levels, and with general supply tightness it is possible, sources said, that inventories will not be strong enough for buyers to retreat.
Continued demand and high prices in January could lead to further price increases in February before a retreat in March and April.
A similar situation occurred in 2013, as PGP contract prices surged in January and February before crashing in the spring and early summer.
Contract PGP prices above the mid-70s cents/lb to high-70s cents/lb also leave polypropylene (PP), the key market for PGP, uncompetitive with other polymers.
Sources said the overall trend for PGP in 2014 should be some growth above the US GDP, and that high prices will keep US PP sellers from being aggressive in overseas markets.
Supply should increase slightly on several cracker expansions, although most of the additional material produced will be ethylene as lighter feeds remain the preferred feedstock.
The early strength in spot and contract PGP prices is expected to lend a slight boost to refinery-grade propylene (RGP) spot prices as well.
However, with continued concerns about a decrease in miles driven in the US because of high gasoline prices, cars with better fuel economy and environmental concerns, RGP demand for gasoline production is expected to continue to experience slow growth.
Coupled with steady supply as refineries run at normal rates, this could lead to lower RGP prices in 2014 and stronger margins for propylene splitters that use RGP to make PGP.
Meanwhile, the strength in PGP could hurt chemical-grade propylene (CGP) and its derivatives, as demand is not expected to grow at the same level for PGP and PP.
Additionally, increased supply for CGP is not expected to outweigh what could be demand destruction from high prices tied to PGP.
RECENT PGP/CGP PRICES
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