US propylene market starting to cool on long supply

18 August 2014 22:53 Source:ICIS News

HOUSTON (ICIS)--The US propylene market showed signs of starting to cool off on Monday, as supply remains long and concerns about demand destruction hit the market.

US front-month spot refinery-grade propylene (RGP) traded at 60.00 cents/lb ($1,323/tonne), down from the previous reported trade at 61.25 cents/lb.

The decline in spot RGP has not hit spot polymer-grade propylene (PGP) as sharply, although the last reported trade was at 69.75 cents/lb, down from 70.00 cents/lb for the trade before that.

Sources had been saying they were surprised by recent high prices for spot propylene, as US propylene inventories are more than 35% higher year on year.

Despite this, spot propylene was slightly higher year on year through mid-August.

Market players said they thought one possible reason for stronger propylene was concerns of tight supply heading into the third quarter as cracker operating rates have been down year on year.

Demand from the polymer sector was also expected to pick up, which could lead to tighter propylene.

However, sources said polypropylene (PP) inventories are not low enough to justify current PGP pricing, and that if PGP remains strong or moves higher, it could push PP levels high enough to open a wide arbitrage window from Asia.

The cooling off of the spot market could also lead to a drawn-out settlement for August propylene, which remained unsettled on Monday.

Sources said buyers had rejected an increase of 5.0 cents/lb, and recent dips in spot RGP and PGP could lead to a settlement closer to 4.5 cents/lb or lower for August.

By John Dietrich