The U.S. has always had more excess and exportable propylene than any other country in the world, according to Frederick Peterson, president, Probe Economics Inc. (Millwood, N.Y.), a chemical industry consulting company. The primary reasons are because of the number of refineries in the U.S. and the fact that this nation uses so much gasoline (the source of propylene).

Output up 2-3 billion pounds

"One thing that is clear is that the propylene business has pulled out of the downturn it experienced last year," says Daniel Lippe, president, Petral Worldwide (Houston, Texas), which provides economic and market studies and surveys for the petrochemical industry. Propylene supplies last year totaled about 24 billion pounds. This year, supplies will be in the range of 26.5-27 billion pounds. "Producers don't make this much more propylene unless there is a reason," he explains. "The reason is a stronger end-use demand for propylene, as evidenced by a recovery in production rates and the strengthening in propylene prices, which started earlier this year." While demand is strengthening, Lippe does not anticipate any near-term problems with availability.

For these reasons, propylene availability tends to be stronger and more stable in the U.S. than in other countries. This has also led to more competitive pricing in recent years, according to Peterson. "Through about 1990, pricing for propylene and ethylene had achieved relative parity," he explains. "Since that time, though, ethylene pricing has increased faster than propylene pricing. It is now to the point where chemical-grade propylene pricing is about 70% the price of ethylene."

Still, recent increases in demand have caused prices to begin rising. "Historically, the availability of propylene shifts relatively quickly between tight supply and greater availability, based on when the pricing swings from unattractive to attractive for extracting it from refineries," explains Doug Culpon, vice president of petrochemicals, Huntsman Corp. (Houston, Texas). Now, with prices increasing, refineries and chemical producers are devoting more attention to propylene production to meet the increasing demand.

Propylene prices increased 3-4¢/lb in recent months to 20-21¢/lb, according to PURCHASING Magazine data. There have been two reasons for this. "About half of the price increase has been due to the basic recovery that we have been seeing domestically," he explains. The other half has been due to some short-term propylene supply problems in Europe, which resulted from some unexpected cracker downtime. "There was a flurry of propylene export cargos shipped to Europe in early June," he notes.

Strong through 2003

However, Huntsman's forward view on propylene is that, over the next 12-18 months, supply will be relatively tight, the result of increasingly strong demand over the last six or seven months, both for polymer and chemical grade polypropylene. "There is sufficient demand to consume the available propylene from both chemical plants and refineries," explains Culpon. "Even with additional output from refineries, we seem to have sufficient demand to consume it."

Pricing will continue to be driven by the underlying value within gasoline, according to Culpon. "High prices in crude oil and gasoline give propylene a high alternate value within a refinery and will therefore support a relatively high price."