US propylene contracts pressured amid spot-price uptrend

Source: ICIS News

2019/05/30

HOUSTON (ICIS)--US May propylene contract prices are under upward pressure because of a sharp spot-price uptrend since early April.

Contract discussions are ongoing late into the month, compared with a typical mid-month settlement, amid nominations for higher prices. Propylene buyers generally anticipate some increase for May given rising spot values and fundamentals.

The two sides have not yet reached an agreement in negotiations, and a settlement could be pushed into next month, which rarely happens.

Some firming of contract prices was expected. After contracts rolled over in April, market sources said propylene had likely reached a floor after falling for five consecutive months as supply grew increasingly ample.

Spot prices rose by 8 cents/lb ($176/tonne) from early April to their highest point in May at 40 cents/lb, although spot values have fallen below that peak in the last week of the month.

The spot-price uptick appears to be the driver of increase initiatives in May, as supply is more than ample, outpacing derivative demand.

Propylene inventories rose to historic highs in late February, and supply should continue to improve as maintenance season at refineries and steam crackers wraps up, barring any unexpected outages.

Inventory levels have fallen over the last several weeks to under the 6.0m bbl mark, according to Energy Information Administration (EIA) statistics, although they remain high compared with historical levels.

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“There’s still record inventories, but I am not sure it’s in the right places,” a source said.

“Inventories are extremely sufficient to meet demand,” another source said.

Downstream derivative demand has been sluggish, outpaced by rising supply levels that have been at or near record highs for most of 2019.

Upstream costs have fallen as WTI crude futures have tumbled below $60/bbl in May. Natural gas liquids (NGLs) prices are also low.

Looking ahead to June, market players do not anticipate any significant firming in propylene markets, as inventories are likely to continue to outpace demand.

US April polymer-grade propylene (PGP) contract prices were assessed flat at 35.5 cents/lb. PGP spot prices were assessed at 38.5-38.75 cents/lb in the week ended 24 May.

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The main outlet for propylene is as a feedstock for polypropylene (PP). Propylene is also used to produce acrylonitrile (ACN), propylene oxide (PO), a number of alcohols, cumene and acrylic acid.

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

Image above shows objects made of polypropylene (PP). Photo by Al Greenwood

Focus article by Amanda Hay