PP prices in China almost at par with propylene

19-Aug-11

Spot homo-PP prices in China have been trading close to par with spot propylene prices on an FOB Korea basis since the beginning of August, resulting in significantly squeezed margins for non-integrated producers, as per ChemOrbis. Spot PP prices regained some premium over propylene this week as spot propylene prices tumbled at the start of the week amid deteriorating buying interest following the recent drop in energy costs. However, spot propylene prices have since regained some of the ground lost earlier this month. Spot PP prices have closely tracked movements in propylene prices over the past few months. Both PP and propylene steadily declined from mid-May to the beginning of July before stronger propylene prices propped PP prices higher until the start of August. The PP market felt effects of the early August plunge in energy costs sooner than propylene prices did as PP prices began to slump two weeks ago while propylene prices remained firm, leaving spot PP prices briefly trading at a discount from spot propylene prices. PP regained its premium this week as spot propylene prices reacted strongly to the decreases seen in upstream costs while PP prices witnessed smaller declines. PP producers have been struggling to maintain a healthy premium over propylene for much of this year after enjoying strong premiums over propylene during the latter half of 2010. Producers normally target a premium of US$170/ton over propylene on their homo-PP prices to China in order to cover freight costs from South Korea as well as conversion costs. Homo-PP prices traded at a premium of US$200-300/ton over propylene from October 2010 to February 2011 but have been unable to regain this level since. From February to July 2011, homo-PP prices traded at a reduced premium of US$70-140/ton over propylene. After the premium briefly moved back to around US$160/ton early in July, strong increases in propylene combined with lackluster PP demand have kept the premium below US$100/ton throughout the month of August.