An initial settlement for US propylene contracts for February called for an increase of 16.5 cents/lb, in agreement with market expectations, market sources said Wednesday.
The settlement was not marketwide, some of the sources warned, citing at least one major producer who seeks an increase closer to 18 cents/lb.
The settlement priced February polymer-grade propylene at 72.5 cents/lb and chemical-grade propylene at 71 cents/lb. Propylene contracts previously settled for January at 56 cents/lb and 54.5 cents/lb, respectively.
At these levels, propylene contracts were at their highest since September 2011, when PGP was at 78 cents/lb and CGP was at 76.50 cents/lb before falling 14 cents/lb in October.
US propylene contracts are settled on a monthly basis between major producers and buyers. The process includes price nominations by producers and subsequent negotiations with customers.
Expectations of a 16- to 18-cent/lb increase on contracts surfaced over the past two weeks as spot prices for all three grades of propylene surged on the back of tightening supply, ongoing turnarounds and, in the case of refinery-grade propylene, stronger alkylation values.
Refinery-grade propylene, which is mostly used as a feedstock for higher-purity propylene such as CGP and PGP but can also go into gasoline blending, was the first to surge. It has risen more than 21 cents/lb since January 17, last assessed Tuesday at 64-64.50 cents/lb.
PGP and CGP also moved up aggressively, gaining nearly 15 cents/lb since January 13 on tightening supply and higher RGP values. PGP was last assessed Friday at 71.5 cents/lb, while CGP was kept at a 3-cent/lb discount at 68.5 cents/lb.
Rising spot prices prompted at least two major producers to nominate steep increases. ExxonMobil was heard nominating a 22-cent/lb hike, while Shell Chemical was heard seeking a 17-cent/lb increase for CGP.
Producers have argued propylene supply is tightening because of current and upcoming cracker turnarounds and also because RGP production has been curtailed as refineries lower their rates or, in the case of two in the Northeast, go idle because of unfavorable economics.
As recently as mid-January, industry forecasts called for a 5- to 7-cent/lb increase. Sources agreed a hike was expected as olefins markets entered a busy turnaround season that is expected to extend into May.
But that was before RGP spot prices surged, as they played catch-up to propylene alkylation values, which reflect the value of propylene as part of alkylate, a high-octane gasoline blendstock.
Alkylation values for propylene on Wednesday were around 69.25 cents/lb, as per a Platts estimate.
