Formosa also seeks June US PP hike to boost margins

Focus article by Lane Kelley

HOUSTON (ICIS)–Formosa Plastics this week joined a growing list of US polypropylene (PP) producers who have issued price increases for June to boost their margins, sources said on Thursday.

According to a letter Formosa sent customers on 6 May, the producer will raise its PP prices by 3 cents/lb.

Similar PP increases have been issued by INEOS and Pinnacle Polymers this month, and sources said another producer (heard to be Total) has announced a 5 cents/lb increase.

A trader said two of the largest PP producers, LyondellBasell and ExxonMobil, had not issued increases yet.

“The game’s never over until you hear from them,” the trader said.

The June hikes, designed to offset drops in major PP feedstock propylene, also are intended to boost producer margin.

Producers expect the increases to weaken the link between PP and propylene, which is so plentiful that its price has dropped in five of the past six months.

Formosa’s letter contained a phrase common to other recent PP announcements, saying the hike “is in addition to any change in monomer pricing.”

That refers to whatever happens with the cost of propylene. Many PP contracts contain so-called monomer-plus provisions, based on the price of propylene.

In 2014, PP producers gained an extra penny of margin in January, though they tried and failed in efforts later in the year. In 2015, most PP producers have picked up at least 4-5 cents in additional margin through hikes targeted for that purpose in January and April.

“This year we’re going to see more than last year,” a producer said, adding that he expected to have gained 6 cents/lb in additional margin this year by the end of June.

PP watchers have low expectations for May, based on propylene nominations of -0.5 and -1.0 so far. There is talk of a contract rollover, and also discussion that the contract could settle flat to down or slightly up, depending on the monomer.

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