US March propylene contracts settle up 4 cents/lb to over two-year highs

Focus article by Tracy Dang

HOUSTON (ICIS)–Snug supply and low inventories have pushed up US propylene prices, prompting contracts for March to settle at their highest levels in more than two years.

March propylene contracts settled on Wednesday and Thursday at increases of 4 cents/lb from February, putting prices for polymer-grade propylene (PGP) at 52.0 cents/lb ($1,146/tonne) and chemical-grade propylene (CGP) at 50.5 cents/lb.

The settlement marks three consecutive months of hikes and puts prices at their highest level since December 2014, when discussions were agreed for PGP at 61.5 cents/lb and CGP at 60.0 cents/lb.

While market participants have been expecting March contracts to settle higher, some believe that 4 cents/lb is too much of an increase.

“Too high in my opinion, considering where spot is trading,” a buyer said. “I expect to get it all back in April.”

Front-month PGP has traded in March at 50.5-52.5 cents/lb, up from 41.0-51.0 cents/lb in February.

Several buyers accepted the March contract rise of 4 cents/lb on Wednesday, but others held out for smaller increases of 3.0-3.5 cents/lb.

A source said that the early agreements were “okay at the beginning of the month but not now”, considering that spot PGP has fallen since trading at 52.5 cents/lb in the first days of March.

Availability had been limited by recent cracker turnarounds and production issues, but supply has improved somewhat as two olefins units have restarted after completing planned maintenance.

Additionally, US Energy Information Administration (EIA) showed that propylene inventories had declined for 10 consecutive weeks, putting stockpiles at their lowest levels in six months. However, inventory levels have rebounded in the last two weeks.

Sources said that producers with steam crackers, metathesis units and propane dehydrogenation (PDH) plants “all have zero reason to request an increase”.

While there has been some downward pressure from lower values for refinery-grade propylene (RGP), which can be used to make PGP, sources said that the RGP/PGP spread has averaged about 15 cents/lb. This leaves splitter margins healthy, compared with the typical 10-12 cents/lb seen during much of 2016.

Additionally, sentiment is bearish on expectations of lengthening supply and lower demand, as several derivative turnarounds are scheduled for the second quarter.

Some downstream producers are moving up planned maintenance to late March and early April because of cost pressures from high-priced propylene.

Sources said that a smaller decrease would have been better for the derivative markets, as it would have mitigated some demand destruction, which has already begun occurring.

Nevertheless, several other buyers accepted the 4 cent/lb increase on Thursday.

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

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

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

Image: Propylene is the feedstock for polypropylene, which is commonly is used to make plastic bottles like these. Source: Monkey Business Images/REX/Shutterstock

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