HOUSTON (ICIS)--US January propylene contract prices have fully settled at a 9 cent/lb ($198/tonne) increase, market sources said on Thursday, and the sharp jump may cause some demand destruction.
The settlement puts January contract prices for polymer-grade propylene (PGP) at 59.0 cents/lb, up from 50.0 cents/lb in December, and for chemical-grade propylene (CGP) at 57.5 cents/lb, up from 48.5 cents/lb in December.
The contract price increase was in line with sharply higher spot prices, which were largely driven by production issues with propane dehydrogenation (PDH) units in the US Gulf.
A new PDH unit at Enterprise’s Mount Belvieu complex in Texas continues to ramp up after its start-up was delayed by Hurricane Harvey. An existing PDH unit at Dow Chemical’s complex in Freeport, Texas, remains offline for maintenance. Another existing PDH unit at Flint Hills Resources complex in Houston, Texas, also had a short shut down in recent weeks.
Spot PGP prices rose to 63.25-67.50 cents/lb in the week ended 19 January from 48.50-49.50 cents/lb in mid-December. Values were pushed higher by several spot trades, including a 62 cent/lb trade for front-month material on 10 January, which had been 19% higher than the previous trade at 52 cents/lb on 29 December.
However, some market sources do not see recent spot prices as representative of the propylene market.
“Without these spot trades, the conversation would have probably revolved around a 2-3 cent/lb increase, based on the tightness in the market,” one market source said.
Costs for propylene production are mixed, with propane costs lower, refinery-grade propylene (RGP) slightly higher, ethane costs higher and crude oil costs higher. Propane feeds PDH units, RGP feeds splitters, ethane feeds crackers and crude oil feeds refineries.
US propylene feedstocks
The high US propylene contract prices also are out of sync with propylene costs in other regions, the market source added.
Propylene prices in both Asia and Europe have risen only slightly since December.
US vs global propylene prices
The increase in propylene prices is expected to create some demand destruction for polypropylene (PP). PP makes up about half of US propylene consumption.
PP operating rates will fall, possibly to around 80% and PP consumer
s are expected to cut back on orders due to the higher prices, one PP trader said.
More PP imports already are coming into the US as buyers had been expecting a rise in propylene prices, another PP market source said.
“February will also see higher [PP] import volumes,” the PP source said.
US propylene contracts are typically settled in the middle of the month for the current month.
Major US propylene producers include Chevron Phillips Chemical, Enterprise Products, ExxonMobil, Flint Hills Resources and Shell Chemical.
Major buyers include Arkema, Ascend Performance Materials, Braskem, Dow Chemical, INEOS, Oxea and Total.
Focus article by Jessie Waldheim
Zachary Moore contributed to this article
Image above shows a bottle made of polypropylene, the main end market for propylene. Source: PhotoAlto/REX/Shutterstock