US spot propylene falls as floor could start to emerge

Focus article by John Dietrich

HOUSTON (ICIS)–US spot propylene prices fell during the week ended Friday, with some buyers saying a floor could emerge soon.

Spot polymer-grade propylene (PGP) prices dipped below the 40 cent/lb ($882/tonne) level and spot refinery-grade propylene (RGP) prices fell below 30 cents/lb.

Year on year, spot PGP prices are down by more than 40% while spot RGP prices are down by more than 45%.

The drops during the week were mostly driven by oversupply in the US market, stemming from high production and inventory levels from crackers and refineries.

Although some supply has been absorbed by exports of PGP into Europe, market players said that the length will need to come out via derivative products.

Buyers have been pushing for lower PGP and chemical-grade propylene (CGP) prices to allow them to export into Europe and Asia.

While Europe could face shortages on several propylene derivatives, owing to a spate of cracker outages limiting propylene production, the continued strong dollar is hampering the attractiveness of US product.

One propylene buyer said that unless every major propylene derivative – polypropylene (PP), acrylonitrile (ACN), monopropylene glycol (MGP) and others – starts to export, the US will have a propylene supply overhang throughout the summer.

Additionally, US propane prices started to plummet during the week, which could further boost propane usage at crackers.

This would likely lead to further propylene production as crackers look to maximise margins on ethylene production.

However, a propylene buyer said the effects of a heavier cracker feedslate have already been felt, and that propylene prices are unlikely to fall further as supply increases.

From the RGP side, sellers have been attempting to limit inventory building by kicking as much RGP into the alkylation pool, and were able to draw down inventories for the week ended 22 May. RGP is used to make alkylate, an octane-boosting gasoline blendstock.

However, inventory levels remain near record highs, and sources said that alkylation values are still more than 30-35 cents/lb above where the spot RGP market is.

The situation is not expected to be eased until the peak summer driving season slows down, which could easily extend into the third quarter as gasoline prices are down significantly year on year.