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US polymer-grade propylene prices reach record high on tight supply

February 24/2021

MOSCOW (MRC) -- US polymer-grade propylene (PGP) prices have reached a record high as strained supply continues to meet heightened demand, said Chemweek.

PGP prices have increased rapidly since the start of February as Enterprise Products took its propane dehydrogenation (PDH) unit in Mont Belvieu, Texas, down for a planned turnaround. Over the first two weeks of this month, PGP increased from its open of 73.375 cts/lb on 1 February to 98 cts/lb by 9 February. As of Tuesday morning, markets were relatively quiet as the impact of Winter Storm Uri was being assessed.

"The US propylene spot market has surged to all-time highs on the back of low inventories, reduced supply and surging downstream demand," says Carlo Barrasa, research and analysis director for North America light olefins at IHS Markit, the parent company of OPIS. "The other factor at play is the lack of derivative imports into the US as container shipping is much more expensive relative to historical patterns, in addition to shipping delays."

PGP prices may have reached a ceiling at 98 cts/lb, the price at which 43 million lbs was traded 9-10 February, before the market fell quiet. Demand destruction was seen in downstream markets as the high feedstock prices resulted in unprofitable production. Market participants began to wonder when PGP prices would fall off, but offers this month held steady at 98 cts/lb through 12 February.

According to OPIS PetroChem Wire (PCW) data, the last time PGP was valued near this level was in 2011, when the previous all-time high price for PGP was seen at 93.5 cts/lb., from 27 April to 12 May. "This is a significant price rise, but importers of US-sourced monomers have reduced their exposure, cracker operators are switching to heavier feeds, and refiners are pulling more propylene out of gasoline production to respond to the market," Barrasa adds. УWhen Enterprise resumes operations in April --combined with the initial arrivals of derivative imports--we believe the prices correct rather rapidly."

Prices for refinery grade propylene (RGP), the dominant feedstock in the US Gulf Coast that is upgraded to make PGP, have also been rising. Varying demand for delivery mode has created a large disparity between pipeline and railcar prices. Prompt RGP prices delivered by pipeline in Enterprise's system at Mont Belvieu rose from 36 cts/lb at the start of January to 39.875 cts/lb in early February. While not much of an increase, the hotter commodity is RGP delivered by railcar, where prices spiked from just above 40 cts/lb a few weeks ago to 66 cts/lb in the first week of February. Typically, premiums on rail material are within 5 cts/lb of the pipeline price; they are currently more than 20 cts.

RGP is a by-product of vacuum gasoil inputted to fluid catalytic crackers (FCC), a major producer of gasoline at a typical US Gulf Coast refinery. According to monthly data released last week by the US Energy Information Administration (EIA), FCC inputs have been radically reduced.

Estimated refinery operable utilization rates in the Gulf Coast (PADD 3) were 84.3%, according to EIA data for the week ending 15 January. This is compared to 90.2% last year and 92.9% in 2019, reflecting refinery reductions that continue to linger following the decrease in fuel demand caused by COVID-19.

The decrease in RGP supply off US Gulf Coast refineries continues to further an already tight RGP railcar market. In response, bids have consistently been seen in the market for chemical-grade propylene (CGP) railcars -- a costly substitute for scarce RGP. CGP pipeline bids emerged at the beginning of February. Shell permanently shut down its Convent, Louisiana, refinery at the end of 2020. The refinery's capacity included a 92,300-b/d FCC unit that supplied RGP to the Gulf Coast pipeline network.

With a decrease in refinery rates from plant shutdowns comes a decrease in RGP supply headed for propylene splitters, therefore reducing available PGP supply. On-purpose PGP production has been impacted since the start of December due to operational issues at the Enterprise Products PDH unit at Mont Belvieu.

Downstream, tight PGP monomer supply has played a role in limiting polypropylene (PP) operating rates. North American PP capacity utilization was at 90%-91% in November and December 20202, as average producer inventory days dropped into the high 20s, according to data from the ACC Plastics Industry Producers' Statistics Group.

With demand falling and import volumes picking up, PP buyers believe a market correction is coming, but it remains to be seen how quickly prices will rewind.

As per MRC, a winter storm has brought unusually cold temperatures, snow, and freezing rain to Texas and western Louisiana, forcing a large share of US light olefins production offline. As of the evening of Tuesday, 16 February, IHS Markit had confirmed the shutdown of at least 61% of US ethylene capacity, 59% of US chemical- and polymer-grade propylene (CGP, PGP) capacity, and 22% of US fluid catalytic cracking (FCC) capacity. Many plants that remained online were running at reduced capacity.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,220,640 tonnes in 2020, up by 2% year on year. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, polypropylene (PP) shipments to the Russian market reached 1 240,000 tonnes in 2020 (calculated using the formula: production, minus exports, plus imports, excluding producers' inventories as of 1 January, 2020). Supply of exclusively PP random copolymer increased.
Author:Anna Larionova
Tags:PP, PP block copolymer, homopolymer PP, PP random copolymer, propylene, USA.
Category:General News
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