OUTLOOK ’16: Long propylene could cut volatility

New propane dehydrogenation units at Dow Chemical in Freeport, Texas, and Enterprise Products in Mont Belvieu, Texas, will see capacity rise in 2016. (Image source: Dow Chemical)

HOUSTON (ICIS)–US propylene supply will likely stay long for much of 2016 owing to new propane dehydrogenation (PDH) units and continued efforts involving cracker expansions.

Dow Chemical should have its Freeport PDH unit in Texas at full rates for all of 2016, adding 750,000 tonnes/year of possible capacity to the market.

Another PDH unit, owned by Enterprise Products, is expected to start up in 2016 in Mont Belvieu, Texas, and add another 750,000 tonnes/year of possible capacity.

With propane prices expected to hold at low levels throughout 2016, this should keep margins strong and push Dow and Enterprise to operate the units at high levels.

This addition of on-purpose propylene will likely ease volatility in the market and could push crackers to favour ethane for more of the year.

In 2015, crackers favoured propane and butane for much of the year, owing to higher co-product yields and prices.

Lower propylene prices in 2016 could reverse that trend, especially if supply from refineries is also high.

Refinery-grade propylene (RGP) inventories were well above year-ago levels throughout 2015, as low crude oil prices led to low gasoline prices.

This drove an increase in gasoline consumption to near-record levels, leading to an abundance of RGP production.

This kept RGP prices below alkylation levels and kept margins for propylene splitters, which use RGP to manufacture polymer-grade propylene (PGP), strong.

Demand for PGP is expected to be strong throughout 2016, as downstream polypropylene (PP) demand should be strong.

PP supply domestically is expected to remain tight until new capacity is added or imports become attractive, neither of which is likely for 2016, sources said.

The strong demand for PGP should limit the downside of propylene prices throughout the year, but long supply could push prices lower on a year-on-year basis.

Major US propylene producers include Chevron Phillips, Enterprise Products, ExxonMobil, LyondellBasell and Shell Chemical.

Major buyers include Ascend Performance Materials, Braskem, Dow Chemical, INEOS and Total.