PetroLogistics LP (PDH)

[Timothy Smith]

PetroLogistics (PDH) owns and operates a 544,000 tonne/year dehydrogenation plant that processes propane into both chemical and polymer grade propylene. PDH raised $595 million in its initial public offering on May 4-9, 2012.

PDH priced its stock at $17 per share. The stock has closed as low as $10.22 since then. It currently appears to be attempting a rebound with a closing price of $12.48 on Sept. 24, 2012.

Reuters cited a rise in raw material prices and top customers planning their own propylene plants as factors in the stock price drop. I don't understand this. Propane prices, the main precursor of propylene, hit multiyear lows of $0.71 per gallon on June 1, 2012. To get there, propane prices had to fall from a near-term high of $1.62/gallon in 2011.

That does not sound like raw materials prices are rising to me. Propane prices have rebounded somewhat sine the June 1, 2012, low to $0.87/gallon on Sept. 24, 2012.

However, they are still very low. Furthermore, if propane prices go up propylene prices will almost assuredly rise in lockstep as this is currently a tight market.