The Urethane Blog

PDH Margins Improve

US PDH margins reach 10-month high amid reduced propylene supply

Author: Michael Sims


HOUSTON (ICIS)–US propane hydrogenation (PDH) margins have reached 10-month highs as production issues have elevated polymer-grade propylene (PGP) prices.

PDH margins have more than quadrupled since early June after plunging 72% in March-May.

US PDH margins

Source: ICIS Margin Analytics

PDH margins were compressed following the onset of the coronavirus crisis in the US as containment efforts curbed demand for most propylene derivatives.

This effect was amplified by rising feedstock natural gas liquids (NGLs) prices caused by concerns about reduced oil and gas production.

The result has been a rapid narrowing, followed by widening, of the US propane-propylene price spread.

NGLs have outpaced the recovery in crude prices, which has been attributed to speculation among market participants that less oil and gas production would tighten NGL supply.

Production data on NGLs has not supported these concerns, and the growth rate of propane prices has slowed accordingly.

The US chemical industry relies predominantly on NGLs including ethane, propane and butane as feedstock.

In addition to rising feedstock costs, production issues have curbed PGP supply, pressuring spot prices to a one-year high.

US propylene production in June decreased by 6.9% month on month, according to Advisian.

Margin outlook

Once the spate of outages is resolved, the outlook for US on-purpose propylene margins ultimately will depend on market confidence in feedstock supply and on the world’s success at containing the coronavirus.

While NGLs supply is not expected to fall short in the near-to-medium term, the propylene demand recovery will be gradual, which could pressure PDH margins.

Greater heating demand for propane during the northern hemisphere winter will also pressure PDH feedstock costs and could contribute to margin compression.

“PDH margins have recovered nicely over the past few months with the recent increase in propylene prices. However, they are expected to decrease into the first quarter of 2021 as propane prices rise faster than propylene with increasing propane demand during the winter heating season,” said Kimberly Haberkost, director of olefins at Chemical Data.

The main outlet for propylene is as a feedstock for polypropylene (PP). Propylene is also used to produce acrylonitrile (ACN), propylene oxide (PO), a number of alcohols, cumene and acrylic acid.

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

Focus article by Michael Sims