US Dec propylene contracts set to fall on weaker demand

John Dietrich

08-Dec-2014

US December propylene contracts set to fall on weaker demandHOUSTON (ICIS)–US December propylene contracts are expected to fall more than the original nominations, sources said on Monday, tracking soft demand and improved supply.

Although two US producers separately nominated their December contracts for a decline of 4 cents/lb ($88/tonne), sources said they expect a fall closer to 5-6 cents/lb.

This is because spot prices for polymer-grade propylene (PGP) and refinery-grade propylene (RGP) have fallen in recent weeks.

Sources said US spot PGP price levels started December in the low-60s cents/lb, which would support a December contract settlement in the mid-60s cents/lb.

US November PGP contracts settled at 71.5 cents/lb, while December chemical-grade propylene (CGP) contracts settled at 70.0 cents/lb.

Spot PGP prices have been pushed down by weak demand from the polymers market, as US material is losing market share globally because overseas polymers prices are declining.

This is mostly the result of falling global energy values, although some of the decline is also because of seasonal factors and year-end inventory control measures.

The decline in global energy futures has also affected US feedstock costs for ethane, propane and naphtha, allowing US crackers to shift their feedslate heavier and produce more propylene.

Some market players said that US PGP spot and contract prices could experience a steeper fall as US spot RGP, which can be used as a feedstock, has fallen to the upper-40s cents/lb.

Given the typical spread between RGP and PGP, this could create a floor for spot PGP in the mid-50s cents/lb and a contract price in the low-60s cents/lb.

US propylene contracts typically settle in the first half of the month for that month.

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

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

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