Propylene prices have been relatively strong in recent years, compared to ethylene. As the chart shows, they averaged 90% of the ethylene price between 2003-8. Now, however, they have returned to the historical 70% – 85% range. Propylene’s recent strength was well founded:
• Benzene prices rose in 2004, making PP more attractive versus PS
• Ethylene then became tight, helping PP to gain volume
• Automakers favoured PP as they sought to reduce auto weight
Now, however, these factors are reversing. Benzene is in surplus, whilst major new ethylene capacities are starting to come online. Equally, auto sales have slumped. As a result, the ratio has fallen back to the long-term average of 78% (based on European monthly prices for Q1).
Producers will hope that it stays above the 70% level, which has held since 1981. But as I warned in the December 2006 issue of ICIS Insight Middle East (Insight.pdf)
, major new on-purpose C3 production is now coming onstream in the Middle East. In addition, refiners are set to produce more propylene (and benzene) from their planned expansions, whilst the outlook for the auto market is not encouraging.