The US Polymer Grade Propylene futures market likely to end up in backwardation

Polymer Grade Propylene (PGP) spot prices in the last week of March had seen demand slowly pick up by mid-week with spot transactions averaging at USD 0.64/lb. Although the futures price for the first half of April were quoted at an average of USD 0.675/lb and transactions for the second half of April averaging at USD 0.67/lb, the April futures curve is most likely to end up in backwardation as per ChemAnalyst’s PGP assessment for the month of April.

Natural gas prices were up 20 cents per pound week on week in the last week of March, exerting cost pressure on the downstream Natural Gas Liquids (NGLs) prices. The propane price trend, however behaved anomalously, showing a week-on-week decrease of USD 0.11/gallon to stand at USD 1.37/gallon. Thus, PGP spot price in the first week of April could see a softening in trend reacting to the drop in price of feedstock propane.

March contracts of PGP averaged USD 0.72/lb, which is a month-on-month increase of USD 0.1/lb compared to the February contract price. PGP contracts for the month of March had been assessed at USD 0.02/lb higher than the March 21 average when the deep freeze-like conditions in the Texas region caused a significant amount of production to go offline. With the second quarter expected to see lower natural gas demand compared to the first quarter, when demand usually rises owing to higher peak winter heating requirement, the prices of Natural gas are likely to be low in the month of April.

Demand from the downstream Polypropylene market will rise as production levels are expected to improve in the month of April creating a demand-pull. The impact of higher demand is however likely to remain offset by a significant relaxation in the prices of feedstock propane, thus prompting producers to be conservative in their approach towards implementing any sizeable cost-push for their April contract offers of PGP. Thus, the April futures curve for PGP is most likely to end up in backwardation.