Bearish Trend Hits Propylene Oxide Prices Globally in December

Texas (USA): Propylene Oxide prices experienced a bearish turn in the second week of December, breaking a stable trend held throughout the past month despite persistent headwinds in the global economy. The upstream propylene markets faced oversupply, exerting negative pressure and causing a significant increase in downstream Propylene Oxide inventories. The downstream propylene glycol market continued its eighth consecutive month of a bearish trend. Although the global Propylene Oxide market largely remained bearish, regional price variations were attributed to different sets of challenges, according to market experts.

In North American and European markets, Propylene Oxide prices plunged primarily due to a weakening of feedstock prices and seasonality. Lower Mississippi River flow presented supply challenges and logistical problems, prompting downstream markets to postpone orders until February. A pre-winter restocking temporarily elevated Propylene Oxide prices, but market forces of demand later pulled down propylene glycol prices below Propylene Oxide. A market trader revealed a $50/mt FOB basis price gap between Propylene Oxide and propylene glycol in the first week of December. Major market players like Shell, LyondellBasell, INEOS, and BASF responded by pulling down prices through force majeure on propylene glycol supplies and destocking large volumes of Propylene Oxide into spot markets at lower rates. Cosmetic demand in North American markets remained weaker than anticipated, leading retailers to reduce newer orders and adjust the value chain accordingly.

European Markets observed weakening of Propylene Oxide and propylene glycol prices, while the positive price differential between the two remained. Low Rhine and Maas water levels, coupled with unnavigable territory, reduced European capacities to handle volumes, especially in international trades. A market participant revealed a 15% drop in capacity utilizations in Belgium and the Netherlands due to strong winter conditions. However, the player remains optimistic about the return of traffic by February, anticipating subsequent inflation cooling down and providing large volumes. Shipping companies faced overcapacity challenges in the North America-Europe trade route, while new orders from Asia remained weaker due to oversupply in the Asian markets. Domestic demand for Propylene Oxide in Asia was subdued due to a seasonal slump and high interest rates, discouraging consumption in the cosmetics and pharma markets.

Asian markets reacted strongly against oversupply sentiments in mid-November 2023. SK Chemicals in Ulsan recently restarted Propylene Oxide production, dumping a significant number of volumes into the Asian markets and further overstocking the market. Prices fell below propylene glycol prices, leading to a negative price differential and negative cash flow for suppliers. An Asian market participant revealed that the Chinese market is slowly destocking their inventories after adjusting their forecasts, as the government's stimulus had limited success in reviving construction demand. The Consumer Price Index dropped in November in China by 0.5%, reflecting a deepening demand crisis and further oversupply in the market.

ChemAnalyst’s market forecast predicts weakening prices in Europe and North America, with a marginal price rise in Asian markets due to the Chinese recovery following additional stimulus offered by the People's Bank in the first week of December and rising crude and gas prices due to Middle Eastern tensions.