Don't look now, but average North American polypropylene prices have jumped another 7 cents per pound since June 1 and may be up another 17 cents on top of that by the end of July.
The culprit is familiar: feedstocks reflecting rocketing prices for crude oil and natural gas. And one is affecting the other in a key way. By using lighter and less-expensive ethane feedstocks from natural gas, as opposed to heavier naphtha feedstocks from crude oil, some PP makers are saving themselves money but are reducing the amount of propylene monomer available to make PP.
That's because light feeds typically produce 50 percent less propylene than heavy ones, according to several market contacts. Unfortunately, the situation isn't likely to reverse itself until there's a substantial break in oil pricing. Oil futures closed July 1 at $140 per barrel a rise of almost 50 percent from Jan. 1.
``Light [propylene and ethylene] crackers are favored right now and heavy crackers are losing cash,'' an industry executive said. ``The ones that can swing from one feed to the other already have.''
The 7 cent June move was out of a possible 8 cent rise nominated by PP makers. It fell a penny short after propylene monomer settled at the lower level. Increases nominated for July 1 and later in the month are varied and in some cases are tied to monomer plus a fuel or freight surcharge but most expect the attempt to land right around 17 cents.
These major increase attempts come at a time when North American processors are buying less PP. First-quarter sales were down 6 percent, according to the American Chemistry Council in Arlington, Va. Export sales, which carried the regional market during an otherwise-weak 2007, are down 5.5 percent in the first three months of the year.
Sales into injection molded housewares and transportation parts took substantial hits in the first quarter, dropping 9 percent and 13 percent. Sales into film and injection molded cups and containers showed surprising strength, up 11 and 6 percent, according to ACC.
Short-term supply will be affected later this year when market leader LyondellBasell Industries AF SCA shuts down 280 million pounds of capacity at a plant in Morris, Ill. That move comes after the firm took out 825 million pounds of capacity by closing a pair of Canadian sites in 2007.
But the market will regain that capacity and a little more by the end of 2009 as LyondellBasell plans to restart a 500 million-pound-capacity line in Texas and open an 800 million-pound-capacity expansion in Mexico. The firm also plans to open a massive, 1 billion-pound-capacity PP plant on the Caribbean island of Trinidad by 2012.
LyondellBasell, based in Rotterdam, Netherlands, posted first-quarter polymers sales of $4.7 billion and operating income of $212 million.