US Jan propylene contracts expected to fall on improved supply

HOUSTON (ICIS)–US January propylene contracts are expected to decline on improving supply and falling global markets, sources said on Friday.

Sources said one US producer has nominated a decline of 8 cents/lb ($176/tonne) for its January contracts, while no other nominations have been confirmed.

December contracts for polymer-grade propylene (PGP) settled at 61.5 cents/lb and chemical-grade propylene (CGP) settled at 60.0 cents/lb.

Early in the week, some sources were pegging contracts to fall 10 cents/lb, but further declines in spot prices have led to speculation that the fall could be closer to 11-12 cents/lb or more.

A drop in line with earlier expectations could put polymer-grade propylene (PGP) contracts at their lowest since August-September 2012, when they settled at 50.5 cents/lb and 51.5 cents/lb respectively.

With current spot PGP for January heard at the 47.0 cent/lb level, contracts could fall below the 50.0 cent/lb level for the first time since November 2009, when they were at 49.5 cents/lb.

US propylene contracts typically settle 2-3 cents/lb above the most recent spot trading level.

The drop in propylene has been fuelled by increased supply and falling feedstock costs, sources said.

The increase in supply comes from several cracker restarts since November and a shift toward heavier feedstocks because of cost advantages.

Prices for propane, butane and naphtha have been falling faster than ethane, both in the US and globally, making them more attractive to crackers and producing more propylene.

Propylene splitters are also experiencing strong margins, as spot prices for feedstock refinery-grade propylene (RGP) have fallen faster than spot PGP or derivative prices.

Spot RGP prices are at their lowest since sitting at 34.5 cents/lb for the week ended 19 June 2009, tracking oversupply as refineries continue to run strong but gasoline consumption weakens.

Propylene inventories continued to build, while buyers of RGP and PGP have mostly retreated to the sidelines, waiting for the market to hit bottom.

Demand for propylene from consumers is also falling, as derivatives made in the US face stiff competition from overseas producers.

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