UPDATE 3-Propylene-maker PetroLogistics falls in debut

Fri May 4, 2012 4:24pm EDT

By Ashutosh Pandey

May 4 (Reuters) - PetroLogistics LP, a producer of propylene used by the plastics industry, fell as much as 14 percent on its market debut as raw material prices continue to rise and top customers plan their own propylene plants.

PetroLogistics, which competes with units of Chevron Corp , ExxonMobil Corp and Williams Cos, processes natural gas byproduct propane into propylene, used in consumer products to building materials.

Propane prices have risen in the last one year as production failed to keep pace with demand.

The company, which counts Dow Chemical Co and units of Total and BASF Corp as its customers, could be hurt in the next few years as some of its top customers look to build their own propylene plants.

"Their major customers building their own plants will result in an increase in the number of plants and excess supply ... They stand to lose some of their customers," said Francis Gaskins, a partner at IPODesktop.com.

Resources companies that went public in the last one year have struggled to generate interest among investors due to volatility in crude oil and natural gas prices.

"Investors are staying away from energy plays," Jim Krapfel, an IPO analyst at Morningstar, said.

"The stock is also flying under the radar and investors are focusing on companies they know well."

PetroLogistics, however, said it has benefited from cheaper natural gas, which has fallen to a decade low, while oil prices surge.

PetroLogistics' weak market debut after it sold 35 million units at the bottom of its already lowered price range of $17 to $19 per share, contrasts with a 20 percent rise in the shares of teen retailer Tilly's Inc in its debut.

After PetroLogistics' offering, private equity firms Lindsay Goldberg and York Capital own 63 percent of the company's common units.

Last year, PetroLogistics posted a profit of $21.9 million up from a loss of $39.7 million in 2010. Sales rose to $614.9 million from $30.4 million.

The Houston-based company's units closed down 3 percent at $16.50 on Friday on the New York Stock Exchange.

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