HOUSTON May 6-US propylene contracts for May began to settle down by 12 cents/lb ($265/tonne, ?07/tonne), market sources said on Thursday, citing a recent slump in refinery grade propylene (RGP) prices as the main driver behind the drop.
The initial settlements put polymer-grade propylene (PGP) at 63.50 cents/lb and chemical-grade propylene (CGP) at 62.00 cents/lb, according to global chemical market intelligence service ICIS pricing.
The reduction was the first drop since October and only the second contract drop in the last 17 months.
Tight supply drove propylene contracts up by 61% between October and April, making the US monomer the most expensive in the world.
Sentiment among US buyers about the initial settlement was mixed. One source said the reduction was in line with expectations, but another claimed the drop was not even close to being enough.
It stinks to high heaven, the buyer said, vowing to push for a bigger drop while charging that US propylene prices are still ridiculous high .
The settlement should be something closer to down 15 cents/lb, the source said.
Weakness in US propylene surfaced in early April after RGP spot prices started to drop amid pressure from increased supply.
RGP, a co-product of gasoline, is a key component in the cost structure of US propylene, accounting for 60% of the market in 2009, according to data from the National Petrochemical & Refiners Association (NPRA).
The product traded this week at 39.00-40.00 cents/lb, down from deals done at 58.00-58.75 cents/lb in the first week of April.
The drop in RGP prices came as US refineries ramped up production to meet gasoline demand in the summer driving season.
US refineries ran at 89.6% of capacity in the week ended 30 April, up from 82.6% a month earlier and a 2010 low point of 78.4% in mid-January, according to the US Energy Information Administration (EIA).
Refinery-sourced propylene stockpiles last week stood at 3.064m bbl, rising by 41% from 2.178m bbl in the last week of March, EIA data showed.
More RGP supply from refineries is making prices go down, a source said.
Another market participant also attributed softness in US propylene to weaker demand.
Demand got killed by those high PGP prices, the source said.
The surge in US propylene dampened activity in the polypropylene (PP) market, pushing domestic buyers to the sidelines while making US resin lose competitiveness in the export market.
US PP exports in February, the last month for which data is available, fell by 12% from a year earlier to 98,083 tonnes, according to government data.
PP demand in the domestic market was also said to have weakened in April, as buyers left the market in anticipation of a correction in monomer prices.
Chevron Phillips Chemical, Enterprise Products, ExxonMobil, LyondellBasell and Shell Chemical are among the major US producers of PGP and CGP.
Dow Chemical, INEOS, Ascend Performance Materials and Total are among the main buyers.
The initial settlements put polymer-grade propylene (PGP) at 63.50 cents/lb and chemical-grade propylene (CGP) at 62.00 cents/lb, according to global chemical market intelligence service ICIS pricing.
The reduction was the first drop since October and only the second contract drop in the last 17 months.
Tight supply drove propylene contracts up by 61% between October and April, making the US monomer the most expensive in the world.
Sentiment among US buyers about the initial settlement was mixed. One source said the reduction was in line with expectations, but another claimed the drop was not even close to being enough.
It stinks to high heaven, the buyer said, vowing to push for a bigger drop while charging that US propylene prices are still ridiculous high .
The settlement should be something closer to down 15 cents/lb, the source said.
Weakness in US propylene surfaced in early April after RGP spot prices started to drop amid pressure from increased supply.
RGP, a co-product of gasoline, is a key component in the cost structure of US propylene, accounting for 60% of the market in 2009, according to data from the National Petrochemical & Refiners Association (NPRA).
The product traded this week at 39.00-40.00 cents/lb, down from deals done at 58.00-58.75 cents/lb in the first week of April.
The drop in RGP prices came as US refineries ramped up production to meet gasoline demand in the summer driving season.
US refineries ran at 89.6% of capacity in the week ended 30 April, up from 82.6% a month earlier and a 2010 low point of 78.4% in mid-January, according to the US Energy Information Administration (EIA).
Refinery-sourced propylene stockpiles last week stood at 3.064m bbl, rising by 41% from 2.178m bbl in the last week of March, EIA data showed.
More RGP supply from refineries is making prices go down, a source said.
Another market participant also attributed softness in US propylene to weaker demand.
Demand got killed by those high PGP prices, the source said.
The surge in US propylene dampened activity in the polypropylene (PP) market, pushing domestic buyers to the sidelines while making US resin lose competitiveness in the export market.
US PP exports in February, the last month for which data is available, fell by 12% from a year earlier to 98,083 tonnes, according to government data.
PP demand in the domestic market was also said to have weakened in April, as buyers left the market in anticipation of a correction in monomer prices.
Chevron Phillips Chemical, Enterprise Products, ExxonMobil, LyondellBasell and Shell Chemical are among the major US producers of PGP and CGP.
Dow Chemical, INEOS, Ascend Performance Materials and Total are among the main buyers.
