Gap between ethylene, propylene grows; price crash could be imminent for PP

The gap between spot ethylene and propylene continues to expand, reaching previously unseen levels with the potential to impact downstream markets for polyethylene and polypropylene. A report from PetroChem Wire (Houston, TX), which CME Group uses to index its ethylene contract, notes that the divide, which first emerged in March, has reached $0.20/lb, with spot ethylene trading most recently at $0.255/lb, while spot refinery-grade propylene (RGP) traded at $0.45 and $0.47/lb.

Kathy Hall, executive editor for the PetroChem Wire, told MPW the space between the two monomers will likely impact pricing for their derivative polymers, polypropylene (PP) and polyethylene (PE). “PE margins are much better than they are for PP at the moment,” Hall said. “I’m sure that PE producers will try to raise pricing a little bit as ethylene is slowly rebounding, but it’s PP producers that I think are expected to issue big increases in September, just to stay ahead of costs.”

PetroChem Wire believes a mixture of factors can be blamed for the discrepancy, including continued use of ethane and propane as raw material inputs for steam crackers, and a series of planned and unplanned outages for steam crackers and refineries in the U.S. Gulf region.

While spot RGP prices have already gained nearly $0.10/lb in August, spot ethylene pricing has spent much of second quarter oscillating between $0.20 and $0.25/lb, with a low of $0.19/lb in mid-July. PetroChem Wire notes that historically, ethylene prices close in line with finished-grade polymer-grade propylene (PGP). PGP itself has typically maintained an average premium of $0.04/lb to RGP.

Ethylene’s fall is due in part to extremely low ethane prices, which have prompted steam cracker’s to opt for the natural-gas liquid as a feedstock for the olefin. Downstream consumption has been lower than in years past, so that ethylene spent several months in a buyer’s market. Spot ethylene prices have slowly rebounded in July and August due to international interest for polyethylene and ethylene glycol, as well as ethylene outages. However, PetroChem Wire notes that corresponding resin market prices in the low $0.50/lb range have resulted in the aforementioned compressed margins for PP, especially compared to PE.

If the situation moves forward as it has thus far, Hall notes that PP prices would far outstrip PE, echoing the summer of 2008. “If PP prices get too high to be able to be exported, demand could back up in the states,” Hall said, “and some folks wonder if that isn’t setting the stage for a price crash like we saw in fourth quarter of last year.” —Tony Deligio