US propylene contracts for May could drop anywhere from 7-12 cents/lb given falling spot prices that have resulted from continued lackluster demand from key downstream markets, market sources said Monday.
US spot polymer-grade propylene was heard done at 63 cents/lb MtB pipe in morning trading after being talked in a range of 60-65 cents/lb. The last time spot PGP was talked this low was in mid-January, when Platts assessments were at 61.75 cents/lb for the week ended January 20.
"Spot PGP at 63 cents/lb implies a contract price of around 65.50 cents/lb," a source with a major buyer said.
Propylene sellers strongly disagreed, with one source with a major producer saying prices down 7 or 8 cents/lb was more reasonable.
"You know that no producer would be selling down while negotiating a contract price," the source said of the 63 cent/lb deal.
Some sources, including at least one producer, pointed to refinery-grade propylene hanging steady around 60 cents/lb MtB pipe and alkylation values in the low-to-mid 60s cents/lb as reasons why propylene contracts likely won't drop as much as some believe.
The propylene market follows spot RGP prices since the grade is often used to make higher-purity propylene such as PGP. The alkylation value of RGP is its implied value as a component of the gasoline pool.
The propylene market closed last week talking an expected decrease of between 5-10 cents/lb. Talk of a more pronounced decrease rose Monday after an industry consultancy pegged the downward movement at 12 cents/lb for May.
Contracts last settled for April at 77.50 cents/lb for polymer-grade propylene, and at 76 cents/lb for chemical-grade propylene.
A 12 cents/lb decrease would put May PGP at 65.50 cents/lb, in line with recent spot levels, sources said.
"PGP is around 63 [cents/lb] and contract down 12 yields a 65.5 cents/lb price," a veteran olefins trader said. "So spot is where it should be."
Initial nominations from major producers were heard at flat for PGP and at down 3 cents/lb for CGP, although privately at least some sellers were considering bigger drops, two market sources said last week.
Expectations of an even more pronounced decrease were heard in the polypropylene market, where spot homo polymer injection was heard talked some 15 cents/lb or more lower than contract levels for April at 86-87 cents/lb.
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.
Spot PGP was last assessed Friday at 64-64.50 cents/lb delivered, with CGP at 61-61.50 cents/lb and RGP at 58.75-59.25 cents/lb, also delivered.
