US January PP rises 5 cents/lb on propylene, margin expansion

Michelle Klump

17-Jan-2014

US January PP contracts rise on propylene, margin expansion HOUSTON (ICIS)–US polypropylene (PP) contract prices for January were assessed higher on Friday, based on a jump in feedstock propylene prices as well as a successful margin increase implemented by producers.

Prices moved up by around 5 cents/lb ($110/tonne), which includes the 4 cent/lb increase in polymer-grade propylene (PGP) prices, as well as the 1 cent/lb margin bump. Sources indicated this week that producers had been successful in implementing around 1 cent/lb of a proposed 2 cent/lb margin expansion sought for 2014 contracts.

The 4 cent/lb increase for propylene is less than was originally expected following a nomination for an increase of 7.5 cents/lb earlier in the month. Market participants said they believe the lesser increase was in part due to some large PP producers not buying as much propylene in December.

While prices did not rise as much as initially expected, one trader said the increase still puts PP prices very close to the 90 cent/lb mark, which tends to be the point at which demand begins to  fall away.

“We are still at a very lofty price here,” the trader said.

However, the trader does not expect the January increase will be enough to cause buyers to turn away from the market, particularly with the expectation that prices could rise again in February.

“We are in a momentum market right now, so typically prices continue to move in that direction until something stops them,” the trader said. “What is going to stop it is that demand collapses. I don’t think this 4 [cent/lb increase in propylene] is enough to cause that to happen.”

One producer expects prices will peak in February before holding steady or possibly falling in March, April and May.

“They [customers] are going to stop buying in February and wait for the price to come down in March,” the producer said. “I believe February will be a challenging month.”

With the increase, US PP contract prices for January were at 86.50-88.50 cents/lb DEL (delivered) for homopolymer injection and raffia-grade material for medium-to small-volume buyers, as assessed by ICIS.

Major North American PP producers include LyondellBasell, ExxonMobil, INEOS, Total, Formosa Plastics, Braskem, Pinnacle Polymers, Phillips 66 and Flint Hills Resources.

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