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Spot Propylene Prices Continue to Run Higher
October 20, 2023

Spot Propylene (PGP) prices have continued to run higher, trading up to $.46/lb, as monomer production disruptions persist. These production issues have largely been responsible for a quick 50% rise in PGP prices, translating into cost-push price increases for North American Polypropylene spot and contract prices.

The PGP market has been plagued by a series of outages since Sept, which have compounded to create a meaningful supply shortage. The newest outage began Oct 7 at Enterprise's PDH # 2 unit in Chambers County TX. This unit, the newest in North America, commenced operations in July with an annual PGP capacity of 1.65 billion pounds. This PGP production has been estimated to be offline for 3-4 weeks; though, bringing a Propane Dehydrogenation (PDH) back online to consistent operations has been historically challenging.

The BASF/TotalEnergies heavy cracker and its Metathesis unit in Port Arthur, TX, with joint annual PGP capacity of 1.9 billion pounds, have been offline since early Sept due to a fire. Shell has outages at its Deer Park, TX complex which suffered from a massive fire in May, impacting Ethylene and Propylene production, and its Petrochemical complex in Monaca, PA. Enterprise's PDH # 1 in Chambers County, TX and Dow's PDH unit in Freeport, TX both went offline in Sept and have since returned online.

PGP / PP contracts rose $.045/lb in Sept and based on spot activity so far this month, Oct contracts are poised to rise another $.06/lb. Monthly PGP contracts are largely based off the spot market average during the month, and since pricing during the first half of Oct was well below current levels, if monomer prices remain elevated at these levels it would lead to another PGP / PP price increase for Nov.

Propylene monomer has traditionally been produced at refineries and crackers. However, Propylene derived from refining Crude Oil often competes with high valued Alkylation used to improve Octane in Gasoline. Propylene is also derived as a limited by-product of Ethane cracking, which primarily makes highly sought Ethylene. The advent of PDH, which turns cost-advantaged Propane directly into PGP monomer, has been a mixed blessing for the PGP / PP markets, which have historically been susceptible to huge swings in pricing, challenging participants to manage their costs and inventories.

In the long-term, PDH units, and we expect more to be built in the US and abroad, will help PP producers lower their overall feedstock costs, but in the meantime, the industry has already come to rely on PGP produced from PDH, and the supply / production has proven to be less consistent than desired. This has contributed to some extreme price volatility like we saw in the first half of 2023 when PGP prices went from $.31/lb to $.73/lb in Q1 before cratering back to $.32/lb in Q2. Once again we are in the midst of another supply constrained PGP rally, and do note that there is planned maintenance at PDH and refineries scheduled for Q1'24.

--The Plastics Exchange

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