US February propylene fully settles higher on tighter supply

John Dietrich

20-Feb-2015

US February propylene fully settles higher on tighter supplyFocus article by John Dietrich

HOUSTON (ICIS)–US February propylene contracts reached a full settlement at a slight increase, sources confirmed on Friday, tracking tighter supply and higher feedstock costs.

US February propylene contracts gained 1.0 cents/lb ($22/tonne), putting February polymer-grade propylene (PGP) at 50.5 cents/lb and February chemical-grade propylene (CGP) at 49.0 cents/lb.

Sources said there had been thoughts that a recent run-up in spot PGP would push contracts up by 1.5-3.0 cents/lb.

However, spot PGP prices moved lower mid-month but were still 1.5-2.0 cents/lb higher from where they sat at the January settlement.

US propylene contracts typically settle in the first half of the month for the rest of the month up 2-3 cents/lb from recent spot trading activity.

Propylene buyers said the recent run-up in spot PGP was driven by some hedging against rising feedstock costs rather than increased consumption.

This is because US propylene values remain higher than Europe or Asia, allowing derivative producers in those regions to hold a cost advantage and limiting US exports.

Propylene producers argued that crude oil and other feedstocks showed signs of climbing in February, leading to higher propylene production costs, especially from a refinery level.

Additionally, several planned refinery turnarounds and an ongoing United Steelworkers strike at several other refineries tightened supply of refinery-grade propylene (RGP).

Several buyers argued that supply of RGP has not tightened significantly from lost production, but rather from producers building inventories of less-expensive material ahead of a seasonal increase in demand from the gasoline sector during its summer driving season.

Market players said that in the polymers sector, inventory building is unlikely, as supply remains tight and it remains unclear if a floor for global energy and oil prices has been reached.

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

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

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