US January propylene contracts expected to jump on tight supply

HOUSTON (ICIS)–US January propylene contracts are expected to climb on the back of tight supply and steady demand, sources said on Tuesday.

The initial nomination for January polymer-grade propylene (PGP) contracts is for an increase of 7.5 cents/lb ($165/tonne, €121/tonne).

This would put January PGP contracts at 78.0 cents/lb and would put chemical-grade propylene (CGP) contracts at 76.5 cents/lb, if there were no split settlement.

Sources said tight supply has been the biggest factor in supporting higher propylene prices.

Additionally, because of tight supply to end 2013 and expected tight supply stemming from the US cracker turnaround season in early 2014, pre-buying has been common.

However, sources said that buyers and consumers were not able to build up inventories quickly enough because of existing supply tightness in December, which allowed producers to seek the big increase in contracts.

Since spot PGP prices peaked at 74-75 cents/lb in late December, they have fallen to 72-73 cents/lb.

As US PGP contracts often settle 2-3 cents/lb above the most recent spot trading level, this would lead to a January settlement of 75-76 cents/lb.

US propylene contracts are typically settled in the first half of the month for that month.

Major US producers include Chevron Phillips, ExxonMobil, LyondellBasell, PetroLogistics and Shell Chemical.

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

($1 = €0.73)