US IPA responds to high upstream propylene costs but domestic demand remains limited

HOUSTON (ICIS)–As the US propylene market continues to see some of the highest price gains in years, the downstream product isopropanol (IPA) has seen a more muted response as domestic demand remains low.

IPA and propylene relationship weakens
IPA prices have often correlated with propylene. However, that relationship has weakened twice in the past year, in different ways.

First, last spring, IPA prices soared as the coronavirus first impacted the US economy. Hand sanitizer, previously a small end-use market for IPA, had overwhelming demand as consumers sought the product at unprecedented levels.

At the same time, propylene prices declined and stayed consistently down due to declining demand during the broader economic slowdown. Now, almost a year later, propylene prices are soaring in spot markets and in monthly contracts.

January propylene contracts settled up 12 cents/lb ($265/tonne), the largest monthly increase in the last eight years. Additionally, December propylene contracts settled up 10 cents/lb. Combined, this is the steepest increase in propylene contracts over a two-month period since 2011.

Last week, spot prices of polymer-grade propylene (PGP) reached 92 cents/lb, only a few cents below record levels and at the highest point since May 2011.

However, domestic IPA prices are rising only incrementally due to muted demand. Despite pushback from buyers because of low demand, prices have gone up, but at lower rates.

Modest domestic IPA price movements, export prices rise higher
Price increase nominations of 7 cents/lb ($154/tonne) were discussed in late January and last week. Prices have not risen at that level recently in the domestic and spot markets.

Thus far, US prices have risen, but nominations have not been fully implemented yet, particularly on the higher end of the market.

Domestic contracts were last assessed at 70-75 cents/lb DEL (delivered) US Gulf. Spot prices were assessed at 69-72 cents/lb FOB (free on board) US Gulf.

The largest change has occurred in IPA export prices, particularly to Latin America. Due to tight supply of IPA in the region, particularly because of limited and costly Asian material, US export prices have increased significantly in recent weeks.

Higher container costs remain an issue for Asian material, which has had a greater impact on Latin America than the US, the latter of which still has significant domestic output.

South Korean production has  recently resumed at LG’s Yeotsu facility though. Production was impacted due to a fire in Q4 2020, and repairs continued into Q1 2021.

Spot prices for US IPA export is now 68-74 cents/lb FOB US Gulf. Until recently, prices sold at a noticeable discount compared to material in the US.

December trade data now available
Trade data for December 2020 is now available at the ICIS Supply & Demand Database, and the above issues with Asian material can be seen.

When compared to the end of Q2 and Q3 ’20, imports from South Korea and China have plunged.

Due to a significant increase in imports from  Germany, December numbers increased from November but are still below the totals for May, June and July.

On the other hand, US exports jumped to their highest levels since last January.

The table below shows imports from several major importers but more detailed information can be found in the Supply & Demand Database.

Country	June (imports in tonnes)	September	December
China	2868	0	19
Germany	238	2	2399
Japan	278	145	213
Netherlands	380	1285	0
South Korea	2011	1166	28

US IPA suppliers include ExxonMobil, Dow Chemical, LyondellBasell, Monument Chemical and Shell Chemical.

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Focus article by Deniz Koray