US Jan PP prices drop 10 cents/lb in third monthly cut

Focus article by Lane Kelley

HOUSTON (ICIS)–US polypropylene (PP) contract prices for January fell for the third straight month in a row and for the second month in double-digits, dropping 10 cents/lb ($22/tonne) on plunging propylene values linked to the drop in energy prices, sources said on Friday.

The feedstock settlement earlier this month was a big factor in lowering US PP prices for January to 64.50-66.50 cents/lb DEL (delivered) for homopolymer injection and raffia-grade material for medium to small volume buyers. PP contract prices also fell 10 cents/lb in December.

An odd feature of the settlement is that producers got customers to take less than the full propylene reduction of 12 cents/lb, which was the lowest settlement since November 2009.

About 60% of all PP contracts include monomer-plus provisions linked to the price and direction of polymer-grade propylene (PGP), which settled at 49.5 cents/lb, in line with the full propylene settlement. The direction of the feedstock usually determines the PP contract price by the same amount – except in January.

PP producers have succeeded in adding a penny or two of extra margin in January of the past four years as part of their effort to deal with a fixed-margin business. For the rest of the year, pricing has been tied to the cost of the raw material – as goes propylene, so goes the derivative PP.

Buyers and traders said that producers held firm this January, telling customers they would only get a price-cut of 10 cents/lb and would keep the other two cents/lb of the propylene settlement for themselves. Producers held firm against customers who pushed back on the deal.

“If they did, [producers would] walk away from it,” the buyer said.

Some producers even shaved more off the propylene cut. One PP producer said that their customers had agreed to a 9 cents/lb reduction, but sources said the consensus reduction was 10 cents/lb.

Traders said there was little strength in the PP market, with not much supply because two plants are down – INEOS’s Chocolate Bayou unit in Texas, and the Phillips 66 plant in New Jersey. The INEOS plant declared force majeure earlier this month. Sources said the Phillips 66 unit also had declared force majeure, but it could not be confirmed.

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