US propylene producers seek to hike prices for February contracts

29-Jan-10

US propylene producers have nominated increases of up to 14% for February contracts, due to tight supply amid low refinery operating rates. This will extend an uptrend that began in November, when contracts started to climb on the back of tight supply of the main feedstock- refinery-grade propylene (RGP). As per ICIS, the nominated increases heard are for 6 cents/lb (US$132/ton) and 8 cents/lb. US polymer-grade propylene (PGP) contracts for January settled at 57 cents/lb, up by 3 cents from December, while chemical-grade propylene (CGP) settled up 3 cents at 55.50 cents/lb. Spot RGP has also been rising, with a February trade done at 55.25 cents/lb on Wednesday - a hefty 18% higher than spot levels a month ago. US refineries ran at 78.4% of capacity in the week ended 22 January, steady with the prior week but down from 82.5% a year earlier, according to data from the Energy Information Administration (EIA). Refiners have been operating at low rates because of squeezed margins caused by weak gasoline demand and relatively high inventories. Propylene supply has also tightened in the recent years on the steady shift towards lighter feedstocks, as US Gulf crackers produce more ethylene and less co-product propylene. That shift has been driven by a desire to take advantage of the relatively low cost of natural gas, which in US markets has lagged the rise in oil values from the lows seen in early 2009. Analysts have warned that some US refineries will need to close before the sector can reach a balance between supply and demand, especially given the long-term trends towards greater fuel efficiency and increased use of bio-fuels. Some plants are already up for sale, and the refinery woes could affect related petrochemical plants.