US propylene peaks to new highs while Asia, Europe stagnate

Propylene prices have moved to record highs in the US due to supply tightness while spot propylene prices in Europe and Asia have stagnated as a result of sluggish demand. PP producers across all major economic regions are complaining about their shrinking margins, with the stand-off between buyers and sellers helping to keep spot prices steady in Europe and Asia despite stronger upstream costs. However, PP producers have been unable to prevent rapid increases in propylene prices in the US owing to the prevalent supply tightness, although propylene sellers acknowledged their customers unhappiness with the current price levels. In the US, April polymer grade propylene contracts have begun to settle with increases of US$331/ton above March, with the new contract level surpassing the previous record highs for US propylene contract prices set in summer of 2008. Producers had initially been aiming for more modest increases of around US$220-242/ton, but a fire at Sunoco’s refinery in Philadelphia which put the company’s FCC out of action intensified ongoing supply concerns. Stronger spot prices for refinery grade propylene, which gained US$110/ton over the past week to set a new record high, provided further support for the increase in the April contract for polymer grade propylene. In Europe, spot propylene prices were quoted notionally lower by around €10/ton over the past week on the lack of spot buying, with many players describing the European propylene market as balanced. Propylene demand was generally said to be healthy in the region, although several propylene derivative manufacturers complained that they cannot afford to absorb any additional propylene increases, adding that propylene demand would begin to suffer if prices continued to move higher. Buyers are mostly holding a wait and watch stance for the present, commenting that they plan to reevaluate the market dynamics towards the end of the month following the upcoming restarts of crackers belonging to SABIC and Dow. In Asia, spot propylene prices on an FOB Korea basis were mostly unchanged week over week as buyers and sellers were unable to reach agreement over pricing. Propylene supply is said to be sufficient within the region, although sellers commented that they cannot afford to agree to any reductions on their prices given persistently stronger spot naphtha prices. Spot naphtha prices on a CFR Japan basis have gained more than US$55/ton since the start of the month while spot propylene prices have actually lost ground by around US$25/ton since the beginning of April. PP producers are offering strong resistance to higher propylene prices, complaining that they cannot cover their theoretical production costs even at the current price levels.