Second nomination for the August propylene contract prices called for a 4 cents/lb hike to 37.5 cents/lb for polymer-grade product, sources said Monday.
The nomination is on the higher end of market expectations, which initially called for a 1-2 cents/lb hike.
The second nomination is also above the initial nomination of 2.5 cent/lb increase.
US polymer-grade propylene was assessed Friday at 34.75-35.25 cents/lb FD USG, steady day on day, while September was also unchanged at 34.75-35.25 cents/lb FD USG. Refinery-grade product slipped 0.5 cent/lb to 22.25-22.75 cents/lb delivered,
The RGP and the PGP assessments are at their highest since the latter part of the second quarter of 2015, Platts data showed.
Sources said the current increase in demand from downstream polypropylene producers and unexpected outages in July have drawn down RGP supplies and inventories, resulting in higher spot pricing.
In addition, US inventories for non-fuel use dropped 84,000 barrels to 2.814 million barrels in the week that ended July 29, US Energy Information Administration data show.
Inventories are the lowest since the 2.472 million barrels total in the week that ended October 31, 2014, EIA data show.
The drop in inventories follows a 0.9 percentage point hike in run rates, which reached 93.3%, the highest since the 94.5% seen in the last week of November.
Enterprise Products Partners' export facility, which shipped out nine PGP cargoes in July and is expected to ship out nine more in August, is also adding to the tightness in the US propylene market, sources added. Each cargo was pegged at 5,000 mt, which would increase the draw on product by 90,000 mt by the end of August, source said.
DOW PDH UNIT, PP PREMIUM LIMIT UPSIDE
But sources said the ongoing startup of Dow Chemical's propane dehydrogenation plant in Freeport, Texas -- which can produce 750,000 mt/year of PGP -- is likely to add some volume back to the market and stabilize prices that recently reached multi-month highs, despite the recent drop in crude pricing. Sources said that the plant is currently running, after the unexpected shutdown in mid-July.
The rise in PGP pricing is somewhat limited by downstream polypropylene prices, which started the year at a 28 cents/lb premium to PGP. Homopolymer PP trading levels were heard around 60 cents/lb rail car in January. But the premium is now close to 6 cents/lb as homopolymer PP trades at a seven-year low of 39 cents/lb rail car.
The contract price is generally 2-3 cents above spot PGP prices at the end of the prior month and the beginning of the new month. Refinery-grade propylene pricing is also considered in the formula because it is a large source of PGP.
US propylene contract prices are settled on a monthly basis between major producers and buyers. The process includes price nominations by producers and subsequent negotiations with customers.
