US May propylene expected to settle lower in long market

Focus article by John Dietrich

HOUSTON (ICIS)–US May propylene contracts are expected to settle lower as supply length outweighs improving demand, sources said on Friday.

Market players said they are expecting a drop of 1 cent/lb ($22/tonne) for May polymer-grade propylene (PGP) and chemical-grade propylene (CGP) settlements.

Producers nominated declines of 0.5 cents/lb and 1.0 cents/lb from the April PGP and CGP settlements of 43.0 cents/lb and 41.5 cents/lb, respectively.

These were the lowest contract settlements since the June 2009 PGP contract settled at 41.0 cents/lb and the June CGP contracts settle at 39.5 cents/lb.

Sources said the US PGP market remains long, owing to increased production of PGP from crackers and refinery-grade propylene (RGP) from refineries.

The increased cracker production is the result of more attractive margins on cracking heavier feedstocks such as propane, butane and naphtha.

Although ethane has regained some of its prime position over propane, butane remains the most attractive.

Additionally, several first-quarter polypropylene (PP) plant outages led to burgeoning PGP inventories, as crackers ran hard to rebuild ethylene inventories.

On the RGP side, refinery run rates have been increasing, especially for gasoline production, leading to more RGP on the market.

This knocked down prices into the high-20s cents/lb, keeping the spread between RGP and PGP at around 11-12 cents/lb, attractive for propylene splitters.

Although the May contract is expected to fall, spot prices have been rebounding for PGP and RGP, as the PP plant issues have eased, leading to increased demand.

Sources said that there have also been some exports of propylene into Europe, although they added that this is not enough to balance the market.

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

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

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