The propylene moves, highlighted in our report today, show just how fragile some of the commodity markets can be and how supply/demand imbalances can change very quickly. In this case, there are likely some significant restart timing issues associated with the freeze, compounding the return of propylene production from PDH units that had been shut down for maintenance. It is also possible that the spot market was overly influenced in the early part of this year by propylene producers purchasing to cover contractual shortfalls than propylene consumers paying up, only to lose money on their incremental sales.
Except for propylene, other markets remain tight, and the Texas production problems have caused shortfalls that will take a while to resolve. Propylene buyers/consumers are facing tight markets, in part because of their production issues, and should see a step up in margins in March, assuming that they can access the cheaper propylene and assuming that March contract prices fall from the February highs to reflect the lower spot level. Of course, it is only the 4th, and a lot can happen over the next 4 weeks. The multiple sources of propylene (which make supply hard to model) and the overall strength in demand for propylene derivatives, could see the spot markets swing back up again, especially given the very low refinery availability.
