HOUSTON (ICIS)–US propylene contracts settled at their lowest level since July 2009, sources confirmed on Tuesday.

The April settlement puts polymer-grade propylene (PGP) contracts at 43.0 cents/lb ($948/tonne) and chemical-grade propylene (CGP) contracts at 41.5 cents/lb.

This is the lowest since the July 2009 settlement, when PGP was at 41.0 cents/lb and CGP was at 39.5 cents/lb.

The 6 cent/lb decline from March contracts was mostly attributed to the market lengthening, owing to improving production and softer demand.

The increase in production stems from high cracker operating rates, as ethylene margins are still large, and the need to restock inventories after shortages throughout the second half of 2014.

Additionally, margins for ethylene via heavier feedstock production, such as butane and propane, have been more attractive than usual, boosting propylene production.

On the demand side, several major downstream polypropylene (PP) unit shutdowns, coupled with a lack of exports, has thinned demand for PGP.

The current US propylene prices have moved to a discount of around 3.5 cents/lb to most Asian material on an FOB (free on board) basis and a discount of less than 1.0 cents/lb to European contracts.

Given the narrow gaps, this would keep the arbitrage window closed, although that is expected to affect the PP market more than propylene.

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, LyondellBasell and Shell Chemical.

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

http://www.icis.com/resources/news/2015/04/14/9875760/us-april-propylene-settles-at-lowest-level-since-july-09/