US Feb propylene remains unsettled, expected to increase

HOUSTON (ICIS)–Expectations of a small increase for February propylene contracts have given way to expectations of a larger increase, although no settlements have been reached as of Wednesday.

Sources said talks for the February increase are in the 1.5-3.0 cent/lb ($33-66/tonne) level, tracking higher spot prices for polymer-grade propylene (PGP) in recent weeks.

The original nominations from producers came in at an increase of 1.0 cents/lb and 1.5 cents/lb.

Since the January settlement, spot PGP prices have risen from the mid-40s cents/lb to the upper-40s cents/lb, although they have started to trend lower.

Material peaked with a trade at 49.625 cents/lb in early February before coming down to 48.500 cents/lb as of Tuesday.

With spot pricing around 48.5 cents/lb, the February contract could settle as high as 51.5 cents/lb, given the 2-3 cent/lb premium contract typically enjoys over spot.

However, several propylene buyers said the run-up in spot PGP was not driven by consumers, and that an increase in propylene contracts would cause demand destruction, especially for polypropylene (PP).

Demand for PP exports has been hit hard by weaker global energy markets, as buyers have retreated to wait for a floor to emerge.

Before crude oil rebounded, however, US propylene prices were climbing on expectations of tighter supply.

The increase in spot PGP has also hit feedstock RGP prices, which have seen bid levels rise from the upper-30s cents/lb to the low-40s cents/lb, narrowing its gap against PGP.

Despite the rise in bid levels, no transactions have been reported, as selling interest is limited ahead of the expected tighter market.

Global energy markets have also risen in February, lending some support to higher propylene values.

January PGP was at 49.5 cents/lb, while chemical grade propylene (CGP) was at 48 cents/lb.

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.