Price Spread Assessed at $1,425/mt on Friday

The price spread between CFR Far East Asia polypropylene and feedstock propylene narrowed to flat, with both prices assessed at $1,425/mt on Friday, according to Platts data.

PP prices shed $5/mt day on day to $1,425/mt CFR Far East Asia Friday amid poor demand, while propylene prices gained $15/mt to $1,425/mt CFR China on scarce supply. The last time that both prices were at the same level was on August 16, 2012.

The production cost of polypropylene typically includes a polymerization cost of $150/mt, and this means that PP prices have to be at least $150/mt above propylene to breakeven.

So far this year, the spread's highest point was at $133/mt on January 2 and has been consistently below $100/mt since March 26.

Buyers in China, Asia's biggest market for PP, shunned imported cargoes for domestic material, instead, due to lower prices. The price for domestic PP was at Yuan 10,550/mt, or $1,370/mt on an import parity basis, according to latest Sinopec data. This is currently $55/mt below the trading level of imported cargoes.

International producers were unable to compete with domestic producers due to much higher propylene prices, market sources said.

Propylene prices have been climbing up since April 18 on tight supply, as a few Asian suppliers have shut their plants for maintenance.

In Japan, Mitsubishi Chemical shut its naphtha-fed steam cracker at Mizushima from May 17 to early July to carry out 50 days of scheduled maintenance. The shutdown would mean a potential loss in ethylene output of 68,000 mt and propylene output of 44,000 mt, as the steam cracker has a design capacity of 495,000 mt/year of ethylene and 320,000 mt/year of propylene.

In South Korea, S-Oil plans to shut its 73,000 b/d residue fluid catalytic cracker at Onsan from July 1-August 8 for scheduled maintenance. The RFCC can produce 200,000 mt/year of propylene.

Market participants were expecting to see a drop in run rates at PP plants across Asia due to the further narrowing of the margin, but at this point no such plans were reported.

"[The propylene] price is already very high -- beyond expectations. Downstream is still weak. I have no idea on the direction," a propylene producer said.