OUTLOOK '19: US propylene production to be bolstered by new crackers, low crude oil

Source: ICIS News

2019/01/02

HOUSTON (ICIS)--Recent reductions in crude oil costs and new cracker start-ups are set to increase propylene production in 2019, although exports and outages could keep some volatility in the market.

"Overall I see the market balance to long with a lot of volatility in between," a market source said.

Propylene supply was tight during much of 2018, which led to some pricing upswings. Early in the year, prices spiked amid several outages for propane dehydrogenation (PDH) units. Through much of the second half of 2018, prices were elevated amid some PDH issues and limited propylene production from crackers.

While production from PDH units may continue to be volatile in 2019, propylene production from crackers improved in late 2018 and that trend is likely to continue into 2019.

Propylene production from crackers had been limited during much of 2018 due to the increased usage of ethane feedstocks, which produce the least amount of co-products like propylene.

As new crackers came on line in March and July, ethylene supply lengthened and ethylene prices plummeted.

The low ethylene prices narrowed cracker margins, prompting crackers to utilise more ethane as it is the most economical feedstock for ethylene production. Strong crude oil values during much of 2018 had supported prices for heavier feedstocks like naphtha, propane and butane, which often made the heavier feedstocks uneconomical.

The share of ethane in the US feedslate rose above 75% by mid-2018, up from the 60s% in the prior year.

Late in 2018, a decline in crude oil values and increased cracker margins had improved economics for heavier cracker feedstocks. Crude oil values are not expected to rise significantly in 2019, which may keep economics for heavier feedstocks workable.

Propane vs Ethane cracker feedstocks

Propylene production from refineries in 2019 is expected to remain strong as amid high refinery operating rates due to strong demand for US fuel exports, particularly from Mexico.

Refiners will also keep rates high in anticipation of healthier demand for diesel as shippers prepare for new the International Maritime Organization’s (IMO) 2020 regulations for bunker fuels, which will require ship operators to shift to fuels with much lower sulphur content than currently allowed.

With improved production from crackers and good production from refineries expected in 2019, outages from PDH units may provide less upward pressure than in 2018.

"The market is so well supplied it is like it is OK," another market source said.

Propylene demand is expected to rebound in early 2019, after a seasonal lull in late 2018, as inventories are rebuilt early in the year. Recent reductions in pricing may spur increased downstream operating rates and put upward pressure on the propylene market.

Farther along in 2019, US propylene supply may be tightened by strong export demand amid what is expected to be a heavy turnaround season in Europe.

Focus article by Jessie Waldheim

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