Propylene contract prices likely to settle lower in June in USA

25-May-10

US propylene contract prices are likely to settle lower in June as per ICIS, though the amount of the decrease remains unclear. Majority of downstream market sentiment is looking for a US$176-220/ton decline for June monomer contract pricing, however, producers are mulling about half the reduction. PP market participants forecast a bigger drop based on expected narrowing of the spread between polymer-grade propylene (PGP) and refinery-grade propylene (RGP). As a result, demand has deteriorated as domestic buyers have been buying hand to mouth in anticipation of a price correction in June amid falling crude oil prices that have curbed export opportunities to major markets in Europe and Asia. The spread between RGP and PGP prices widened to more than 30 cents/lb at the end of April, before May PGP contracts fell by 12 cents/lb as a result of a supply bottleneck at the splitter units that upgrade RGP to PGP. The importance of RGP from refineries has grown as a PGP source because US Gulf ethylene plants have increasingly used ethane as a feedstock, which generates less by-product propylene. A series of planned and unplanned cracker outages in the past few months has reduced the supply of co-product PGP and chemical-grade propylene (CGP), driving up prices.