The accelerating plunge in US spot propylene prices in April has impacted downstream markets as derivative makers are under pressure for reduced prices from buyers due to the time lag in passing on high propylene costs seen in the first quarter. Steep volatility in propylene has made it difficult to set prices on derivative products, as per ICIS. US refinery-grade propylene (RGP) soared 48% in Q1-10 amid multiple cracker shutdowns, the trend toward lighter feedstocks and low operating rates at the oil refineries that account for around two-thirds of US propylene supply. As majority of the shutdowns have passed and refinery run rates picked up ahead of the summer driving season, RGP has been sinking fast. At a time when derivative makers are offering materials made with higher priced feedstock, buyers are hearing of lower propylene prices. The rollercoaster ride has outpaced the ability of producers to pass on the feedstock costs in derivative markets, because they are still dealing with rises in contract values for chemical-grade (CGP) and polymer-grade (propylene) that were settled for April. This week saw conclusion of an RGP deal at 39 cents/lb (US$860/ton); down 18% from a week earlier, and down 43% from a peak around 69 cents/lb in the last week of March. Though falling RGP indicates lower CGP and PGP contracts for May, the relief for feedstock buyers is awaited while sentiments among derivative buyers has already turned sharply.
Producers were now facing an uphill battle to get buyers to accept already nominated price hikes in a range of markets, including isopropanol (IPA), methyl isobutyl ketone (MIBK), monopropylene glycol (MPG) and polyols. Buyer’s resistance to higher prices is rising as they look for some relief after being forced to swallow chunky cost-driven hikes since the start of the year. While buyers were digging in their heels, producers also see an opportunity to rebuild margins by persisting with the earlier cost-driven price gains. The fall in propylene costs is not expected to give much relief to derivative markets like methyl methacrylate (MMA) and butanediol (BDO), because chronic tightness remained the dominant factor.