INTERACTIVE: US May propylene contracts settle up 5 cents/lb on higher spot, upstream

HOUSTON (ICIS)–US May propylene contracts settled for a majority of participants at an increase of 5 cents/lb ($110/tonne) from the prior month, although the settlement was not marketwide, sources said on Tuesday and Wednesday.

The settlement puts the May contract prices for polymer-grade propylene (PGP) at 51.0 cents/lb and for chemical-grade propylene at 49.5 cents/lb. Initial settlements for the 5 cent/lb increase were heard in the previous week. One buyer did not agree to the 5 cent/lb increase.

Earlier in the month, some participants had agreed to May contracts at increases of 4 cents/lb. But a majority was not reached at that level, and most participants returned to negotiations.

The increase was largely driven by higher propylene spot prices, higher upstream crude oil and propane costs, as well as lower propylene inventories.

Front-month PGP had traded at 49.25-53.00 cents/lb in May prior to the settlement, compared with 43.25-44.75 cents/lb in April.

Crude oil and propane costs have been on an upward trend since late April. Crude oil costs affect refinery products, and most propylene is produced in refineries as a co-product of gasoline. Propane costs affect propylene produced in propane dehydrogenation (PDH) units and in crackers.

Inventory levels have fallen nine out of the last 12 weeks, according to data from the US Energy Information Administration (EIA).

 

Despite the lower inventories, propylene supply should be adequate amid some downstream outages and recently started propylene capacity, a market source said.

“EIA inventories are not inclusive of everyone’s systems,” the market source said.

In April, LyondellBasell had declared force majeure on polypropylene (PP) from its plant in Lake Charles, Louisiana. Also in April, the recently completed Enterprise PDH unit in Mont Belvieu, Texas, had achieved an 84% operating rate.

The Enterprise PDH unit “has been running like a charm”, a market source said.

The increase for May propylene contracts follows three consecutive decreases for propylene contracts after tight market had pushed prices sharply higher early in 2018. That tight market was in part due to delays and a slow ramp-up of the new Enterprise PDH unit, which despite some short shutdowns has been operating well since March.

In response to the early-2018 high propylene prices, propylene demand had fallen as PP operating rates were reduced due to some PP buyers turning to more competitive imports.

The May settlement is short of those highs, which for PGP in January was 59 cents/lb and in February was 53 cents/lb. But the May increase could have an effect on downstream operating rates.

“PP could slow down a bit. Their margins are getting squeezed,” another market source said.

PP producers have been seeking margin expansions, but the increase in propylene prices could cause some margin expansions to be deferred.

The PP market also is keeping a close eye on demand, as the passed-through propylene increase could push PP buyers to turn to imported material.

Globally, the increase for May was steeper in the US than in Europe or Asia. US May contract prices remain slightly below Europe contract prices and slightly above the most recent ICIS assessment for Asia spot propylene prices.

US propylene contracts are typically settled in the middle of the month for the current month.

Major US propylene producers include Chevron Phillips Chemical, ExxonMobil, Flint Hills Resources and Shell Chemical.

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

Focus article by Jessie Waldheim