US April propylene contracts settle down 1 cent/lb

HOUSTON (ICIS)–US April propylene contract prices have been settled by a majority of participants at a decrease of 1 cent/lb ($22/tonne) from the prior month, market sources said on Monday.

The settlement puts April contract prices for polymer-grade propylene (PGP) at 46.0 cents/lb and chemical-grade (CGP) propylene at 44.5 cents/lb.

The decline may be a boon to demand, which was lacklustre early in the year because of high US propylene prices relative to other regions.

“Demand should be very healthy now. US is the lowest cost region in the world, so I expect all derivatives to be running flat out,” a market source said.

US PGP contract prices vs Europe, Asia (cents/lb)

US propylene prices had spiked early in 2018 amid production issues for propane dehydrogenation (PDH) units. A new PDH unit had been slower than expected to ramp up after several delays to its start-up, and an existing PDH unit was off-line during most of the first quarter.

Each unit has a propylene capacity of 750,000 tonnes/year.

The high propylene prices had increased costs for domestic derivatives, encouraging derivative buyers to turn to more cost-effective imports and resulting in lower operating rates for propylene derivatives.

As propylene prices moderated through the rest of the quarter, propylene demand began to increase in March.

Production also rebound as the existing PDH unit restarted in early March, and the new PDH unit was heard to be operating well by late March.

The increased production from PDH units has helped the market remain relatively balanced against the recovered demand.

However, propylene inventory levels have been falling for the last five weeks amid recent refinery turnarounds and outages. Refineries remain a major source for propylene, which is produced as a co-product of gasoline.

“The inventory decline is reflecting mostly (refinery-grade propylene) RGP,” the market source said. “With all the new sources of propylene now coming from PDH and crackers, I don’t see it having much of an impact.”

The new PDH unit is the third unit in the US Gulf and has increased PDH capacity by 54%. PDH units produce on-purpose propylene from propane.

Several new crackers are scheduled to start up in 2018 as well. Crackers produce propylene as a co-product of ethylene. In February, the daily rate of propylene production from crackers had increased 1.2% from the prior month due to higher cracker operating rates, according to data from Jacobs Consultancy.

US propylene contracts are typically settled in the middle of the month for the current month.

Major US propylene producers include Chevron Phillips Chemical, 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