NPE ’15: US PP producers make some headway in annual quest

Focus story by Lane Kelley

HOUSTON (ICIS)–US polypropylene (PP) producers are exulting in the progress they have made in their annual quest to get off the gold standard, as it were, as they head for this year’s National Plastics Exposition (NPE).

In the world of PP, the equivalent of the gold standard is what might be called the monomer standard, where producers want to separate the price of PP from the price of propylene.

About 60% of PP contracts depend on whatever happens with feedstock propylene. In the 14 months that cover all of 2014 and the first two months this year, PP contracts mimicked whatever happened with propylene in 12 of those months.

If PP follows propylene in March – which is not for sure yet – it will drop 1.5 cents/lb, following the propylene settlement earlier this month. Propylene dropped a penny in April 2014, as did PP; the feedstock dropped three cents in June 2014, as did PP.

As goes propylene, so goes PP.

“It’s 90% of the game,” a PP buyer said. “That’s been the history for the past five years.”

The exception, the other 10% of the time, has been in January during the past few years when producers take a hard line with customers.

In January 2014, propylene went up four cents/lb but PP contracts rose by five, so producers charged customers an extra penny more than what they normally would have been paid under the monomer standard.

In January this year, propylene dropped a whopping 12 cents/lb, because of plunging oil prices, but most producers – including ExxonMobil – only gave their customers a 10-cent price cut on PP, offsetting the huge monomer drop with some margin for themselves.

Some producers even talked customers into taking only a 9-cent cut. So producers doubled their margin this January compared to what they got in January 2014, and a few got three times as much.

“That’s a lot more than we made last January,” one producer said. “It’s been a good year already.”

One buyer said producers tend to expand their margins at the expense of smaller-volume customers.

“They’re getting some of it from the large buyer but most of the margin from everyone else,” the buyer said.

The role model for PP producers is polyethylene (PE), which has a definite link to the cost of ethylene but is still not as dependent on that feedstock as PP is on propylene.

Meanwhile, PP production in the US continues as a fixed-margin business, usually returning to the gold standard – the monomer-plus contract – which follows whatever happens to propylene.

“And the market just keeps beating the margins down, down, down,” a producer said.

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

Sponsored by the Society of Plastics Industry (SPI), the NPE takes place from 23-27 March in Orlando, Florida.