Propylene Falls 2c/lb in June
US June propylene falls 2 cents/lb on supply length
12 June 2015 18:52 [Source: ICIS news]
Focus article by John Dietrich
HOUSTON (ICIS)–US June propylene contracts fully settled on Friday at a six-year low, tracking a supply overhang and cheap feedstock costs.
Buyers and sellers confirmed the 2.0 cent/lb ($44/tonne) decline, putting polymer-grade propylene (PGP) at 40.0 cents/lb and chemical-grade propylene (CGP) at 38.5 cents/lb.
These are the lowest propylene settlements since contracts hit those same levels for June 2009.
The low prices are mostly attributed to a supply overhang in the market, caused by increasing production and high inventory levels from the first half of the year.
Production levels are high because the US cracker fleet is running well and looking to rebuild inventories of ethylene, which fell throughout 2014 on a spate of production issues.
However, with the global downturn of energy prices since the autumn of 2014, heavier feedstocks such as propane and butane have been preferred by US crackers. Heavier feedstock produce more propylene.
Year on year, propane values are down by 65-70 cents/gal (15-17 cents/lb) and butane values are down by 70-75 cents/gal (14-15 cents/lb).
The cracking of heavier feeds to make ethylene has led to a surge in PGP and CGP production, even as demand levels have not climbed to match the increase.
According to the American Fuel & Petrochemical Manufacturers (AFPM), Q1 propylene production rose 12% year on year.
With several major downstream polypropylene (PP) units down in the first quarter, PGP inventories were able to build.
Year on year, Q1 inventories for propylene were 45% higher, according to AFMP data.
Sources said that US PP supply has not seen a similar boost, and that the market has been steady-to-tight for most of 2015 – even after several plant restarts – and that PP producers have been able to boost margins.
Several US propylene buyers have said that it will take a surge in exports of PP and other propylene derivatives in order to erase the supply overhang in the US.
PGP prices in the US have also been affected by low prices for refinery-grade propylene (RGP), which is also seeing high inventory levels depress prices.
RGP can be used to make PGP via propylene splitting, and with US RGP inventories near record highs, spot prices have fallen around 45% year on year.
With spot RGP prices low, margins for propylene splitters have been healthy for most of 2015, enabling strong production and extra PGP supply.
US propylene contracts typically settle in the first half of the month for that 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.
By: John Dietrich
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