US March propylene fully settles down on drop in demand

Focus article by John Dietrich

HOUSTON (ICIS)–US March propylene contracts reached a full settlement down 1.5 cents/lb ($33/tonne) on Monday, sources said.

The decline puts March polymer-grade propylene (PGP) contracts at 49.0 cents/lb and March chemical-grade propylene (CGP) contracts at 47.5 cents/lb.

Although contracts were initially nominated at increases of 1.0 cents/lb and 1.5 cents/lb, declines in spot pricing in early March pushed talks lower.

US spot PGP and CGP prices fell about 2 cents/lb since the February settlement, which had seen a 1 cent/lb increase on expectations of a rebound in global energy markets and predictions of tighter supply.

Since then, however, global energy markets fell, with most buyers feeling that a floor has not been reached.

Sources said that the drop in propylene spot prices came largely on the back of weaker demand, as four downstream polypropylene (PP) plants are under force majeure (FM) declarations, and a fifth is suffering from production issues.

Additionally, demand for exports remains weak because of lower overseas propylene and PP prices, keeping US material from being competitive.

The drop in demand has also been balanced by steady supply, as cracker operating rates remain strong, owing to a need to restock inventories of ethylene.

Although the cracker feedslate has shifted lighter, sources said margins on cracking propane and butane remain attractive.

Supply of PGP and CGP from propylene splitters is also steady, although given firm prices in the feedstock refinery-grade propylene (RGP) market, margins could shrink further if propylene continues falling.

Sources pegged the spread between RGP and PGP at around 10 cents/lb, based on March propylene contracts.

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

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

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