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More on Propylene Settlement

US Aug propylene fully settles lower on oil, supply

20 August 2015 22:08 Source:ICIS News

Focus article by John Dietrich

HOUSTON (ICIS)–Despite US spot and contract propylene prices falling to their lowest in more than six years, producers continue to keep production levels robust amid high inventory levels.

The US cracker fleet is running at operating rates in the mid-90s% or above, as ethylene margins – its primary focus – are holding steady in the 17-20 cent/lb ($375-441/tonne) level, and capacity has been boosted by several expansions in the past year.

Refiners continue to churn out propylene as a byproduct of gasoline production, which is near record highs. Propylene splitters are also still experiencing attractive margins.

The robust production and high inventory levels have thus played a major role in pushing August contracts down to their lowest levels in more than six years.

US August propylene contracts were fully settled lower by 3.5 cents/lb, tracking declining crude oil prices and robust supply.

The settlement puts August polymer-grade propylene (PGP) at 33.0 cents/lb and August chemical-grade propylene (CGP) at 31.5 cents/lb.


These remain the lowest settlement levels since May 2009, when PGP settled at 31.5 cents/lb and CGP was done at 30.0 cents/lb.

Contracts were originally nominated in late July to roll over, but since then US West Texas Intermediate (WTI) crude oil futures have shed $7.38/bbl, a 15% drop.

The downward pressure from crude oil has enabled overseas propylene and polypropylene (PP) producers to lower their prices, putting some pressure on US propylene sellers.

However, US propylene buyers have said that PP demand remains healthy and that domestic consumption levels are able to absorb almost all of the production, leaving little need for exports to keep the market tight.

Meanwhile, propylene prices overseas have not been able to catch up to US levels despite falling crude, keeping any arbitrage window on PP or other propylene derivatives firmly shut.

Falling crude oil prices have also pressed down on key cracker feedstocks propane and butane, which have held steady as the preferred cracker feedstock over ethane.

This has put propylene production from crackers back at levels before ethane became the dominant feedstock.

With no new downstream capacity to absorb the extra material, propylene inventory levels have been pushed to a five-year high for most of 2015, sources said.

Supply of propylene from refineries has also been robust, with gasoline production near record highs, leading to an excess of refinery-grade propylene (RGP).

From May until July, US non-fuel refinery-sourced propylene inventories were above the 5m bbl level for the first time ever, according to the US Energy Information Administration (EIA).

This has pushed US RGP spot prices to their lowest since the first half of 2009, into the low-20s cents/lb level.


With RGP prices under consistent downward pressure in July and August, the spread between RGP and PGP has held comfortably in the 9-10 cent/lb level.

This has enabled propylene splitting to remain attractive, even in the face of higher-than-normal production from refineries and crackers, further boosting US propylene supplies.

US propylene contracts typically settle 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 buyers include Ascend Performance Materials, Braskem, Dow Chemical, INEOS and Total.