United States Propylene Spot Price Dynamics

Table of contents

• There are three grades of spot propylene traded in the US:
• Propylene Supply - There are lots of moving parts in this market:
  • Refinery FCC units produce refinery grade propylene (RGP), which currently accounts for 70% of total US propylene supply for chemical end-uses:
  • Propylene Splitters purify 70% propylene content RGP to 99.9% propylene content PGP:
  • Ethylene crackers produce co-product propylene supply:
  • Metathesis units at BASF/Total and Lyondell which produce propylene from ethylene and butylenes:
  • Propane dehyrogenation (PDH) units produce propylene from propane feedstock:
• Mechanics of the US spot propylene market:
  • There are 2 main differences between cleared and bilateral physical transactions:
  • 1) Bilateral requires delivery agreed upon by the two companies and the credit risk is between the two companies. The majority of the Enterprise location transactions are in well as no pipeline movements are involved and title transfer takes place at the end of the month.
  • 2) Cleared propylene trades are all CME financial futures contracts and do not allow for physical PGP delivery. The credit exposure is with the CME and you must have a CME account to clear a transaction. Due to CME regulations, the buyer and seller are anonymous to each other, both parties transact with the CME. Cleared PGP financial futures contract transactions had an increasing impact on the spot PGP physical market during 2014. These cleared PGP transactions also had an impact on the monthly contract PGP price negotiations and an increasing role in setting the shape of the PGP financial futures forward curve.
  • PetroChem Wire marks the Mont Belvieu Enterprise PGP storage curve each day at 3:00 pm CST based on actual transactions and the bid/ask broker markets that are available to market participants. The curve is then sent to the CME Settlement Team for the daily settlement PGP financial futures market and subsequent notification to CME accounts with their new margin account values based on each account holder’s market positions versus the settlements (also called Mark-to-Market).
  • As of early October, there are approximately 120 million pounds of financial PGP futures contracts open interest on the CME. The majority of the open interest in the contracts is concentrated in the Oct/Nov/Dec periods. 120 million pounds open interest in the financial PGP futures contract seems relatively high in a market that has days when no trades take place. A one cent/lb daily move in PGP prices changes the CME margin requirements for these participants by $1.2 million. The financial PGP futures contract has become an important part of the propylene market over the past year.
• Transacting:
  • There are two key ways market participants transact spot propylene.
  • The propylene forward curve or the futures market:
• Storage and pricing locations:
• Surprise! - Spot refinery grade propylene (RGP) prices spiked 25% higher in September
  • Refinery Grade Propylene Resistances
• What’s next?
• About Rob Stier

Tables and charts

This report includes 5 images and tables including: