Houston — Spot polymer-grade propylene prices in the US came within a few cents of a 10-year high Feb. 5 in a sharp runup due to tight supply, squeezing margins for most downstream derivatives, market sources said.
Prompt February PGP prices reached 92 cents/lb ($2,028/mt) FD USG Feb. 5, a 140% climb from 38.25 cents/lb on Nov. 20, S&P Global Platts data showed. PGP is just three cents shy of 95 cents/lb reached on May 6, 2011, the all-time high since S&P Global Platts began assessing the market in June 1998.
The spot assessment has also more than quadrupled since posting an 11-year low of 18.625 cents/lb on March 23 as the Americas and Europe entered the height of coronavirus pandemic-related shutdowns and ensuing economic shocks. Those shutdowns crushed demand for downstream polymers like polypropylene largely used to make durable plastics in vehicles and appliances.
MAINTENANCE, SHUTDOWNS TIGHTEN SUPPLY
Supply issues for the monomer emerged after Q2 2020. Propane dehydrogenation (PDH) unit maintenance, cracker outages and hurricane-related shutdowns in August and October tightened propylene availability.
The US has only three PDH units operated by Enterprise Products Partners, Flint Hills Resources and Dow Chemical, respectively, so PGP supply notably tightens when one or more shut for planned or unplanned work.
By the end of July, after Enterprise completed work on its 750,000 mt/year PDH unit and Dow was close to finishing work on its 750,000 unit, propylene prices reached 14-month highs at 39 cents/lb FD USG, recovering more than 100% from the 11-year low hit four months earlier, Platts data showed.
Prices held in the mid-30 cents/lb range from September to early December when an unplanned outage at Enterprise’s PDH unit sent prices to 42 cents/lb, a two-year high.
By Jan. 5, values had reached 56.25 cents/lb and kept climbing.
Enterprise launched a six-week turnaround at its PDH unit on Feb. 1, which appeared to help push propylene prices to the current level, though prices had been rising without such operational issues.
“There is no fundamental explanation I can give for the price to run up that high,” said Rob Stier, senior petrochemical analyst at S&P Global Platts.
He said prices were expected to decline when Enterprise’s PDH restarts and once Formosa Plastics USA brings its 680,000 mt/year mixed-feed cracker at its Point Comfort, Texas, complex back online in February as expected.
Those moves “will help take the froth off of this market,” Stier said.
Stier also noted the high level of open interest in the CME financially-settled Mont Belvieu propylene contract.
“There is very high 120 million pounds of open interest in the February PGP contract, which will be financially settled on the last business day of February, based on the daily average February price,” he said.
DOWNSTREAM DEMAND DRIVES PRICES HIGHER
Strong downstream demand has also supported PGP prices, olefins sources said.
“Until someone takes their foot off the gas downstream, prices will keep going up, staying strong,” a market source said.
In mid-June homopolymer injection PP prices were assessed at $761/mt FAS Houston, and copolymer at $805/mt FAS. On Feb. 3, they were assessed at $2,061/mt FAS and $2,015/mt FAS, respectively – 2.5 times higher in just over seven months. Market sources have said for several months that export PP availability was largely nil given the tight fundamentals.
Other propylene derivative prices show that rise as well.
Normal butanol, used as an additive in vehicle paint, was last assessed Jan. 28 at $1,280 FOB USG, up from $480/mt FOB on April 20, Platts data shows. Export prices for acrylonitrile, used to make plastics and synthetic rubber, were last assessed Feb. 2 at $1,725/mt FOB USG, up from $780/mt FOB on May 5.
HIGH PRICES UNSUSTAINABLE
As PGP prices are just a couple cents away from a 10-year high, market participants speculated about when a price ceiling will be reached.
“Polypropylene can afford [the PGP price increase], other derivatives maybe not,” a source said. “They’re getting marginal at these prices. I suspect we’ll be seeing some imports of polypropylene and exports stopping for propylene.”
Platts assessed propylene at $975/mt CFR China on Feb. 5, a $1,053/mt discount to US prices. As a result, sources said Mexico and Colombia could seek propylene from Asia rather than the US.
“Those are already happening,” an olefins source said. With a possible 15-20 cent contract price increase on the horizon, customers may be inclined to sell their propylene supply at a profit, a source said.
Upstream, improved economics for LPG feedslates could encourage switching from ethane where possible, market sources said. Such switching would increase propylene output and pressure prices lower.
Notably, refinery-grade propylene has remained largely unaffected by the higher PGP prices. Since RGP producers did not experience the same operational issues as PDH units, RGP supply remains robust, sources said. Recent PGP price hikes also have widened the PGP-RGP spread to 52.125-cents- the widest since Platts began assessing RGP in March 2002.
Source S&P Global February 5, 2021
