1. Executive Summary

The Propylene Oxide (PO) market in China has recently transitioned from a period of relative stability to a modest price rebound. Market movement has been primarily driven by cost-side support, while supply–demand fundamentals played a secondary but supportive role. As of March 24, PO prices in Shandong reached RMB 12,100/ton. Looking ahead, the market is expected to maintain a firm-to-upward bias, underpinned by sustained cost pressure and pre-stocking demand ahead of scheduled maintenance activities in April.

2. Market Overview

PO prices remained largely stable in the early part of the week before gaining upward momentum. In Shandong, prices increased from RMB 9,950/ton on March 12 to RMB 12,100/ton by March 24. The East China market followed a similar trend, though price increases were more moderate due to a higher share of contract-based sales.

Key market dynamics included:

• Supply Side: Minor operational adjustments at several production facilities (including SanYue and JinLing) were largely offset by other units, resulting in overall stable supply and manageable inventory levels.

• Demand Side: Downstream buyers initially adopted a cautious purchasing approach, but procurement activity improved later in the week amid rising uncertainty over raw material costs.

• Cost Support: Volatility in upstream raw materials—particularly propylene—gradually strengthened cost support for PO prices.

3. Supply and Demand Balance

Supply:

• Weekly PO output totaled 138,100 tons, down slightly by 300 tons from the previous week.

• Average capacity utilization decreased marginally to 76.63%, a decline of 0.20 percentage points.

• No PO imports were recorded during the period.

Demand:

• Domestic consumption edged up to 132,000 tons, representing a week-on-week increase of 0.10%.

• Downstream performance was mixed: polyether production declined slightly, while propylene glycol output recorded a modest increase.

Balance:

• The market remained in a supply-surplus position, with a surplus of approximately 8,100 tons.

• However, the surplus narrowed slightly compared with the previous week, offering mild support to spot prices.

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4. Cost and Profitability Analysis

Raw Material Costs:

• Propylene: Prices in Shandong rose by 6.56% to RMB 8,525/ton, supported by both cost pressures and concerns over supply availability.

• Chlorine: Prices were volatile, declining earlier in the week before rebounding toward the end.

Profitability:

• The chlorohydrin process—the dominant PO production route—experienced a notable recovery in margins. Average weekly profit reached RMB 268.78/ton, improving by RMB 445.33/ton from the previous week’s loss.

• The HPPO process remained unprofitable, though losses narrowed by 16.80% to RMB -662.52/ton.

• Downstream profitability showed divergence: margins for PO and certain derivatives improved, while polyether producers faced margin pressure due to rising feedstock costs.

5. Downstream and Related Markets

Key Downstream Sectors:

• Polyether (Soft Foam): Prices softened early in the week before rebounding sharply, driven by rising raw material costs and tightening supply expectations. Shandong prices increased by 3.72% to RMB 11,150/ton.

• Propylene Glycol: The market traded within a narrow range. While PO cost support provided a price floor, expectations of increased future supply limited upside potential.

Capacity Utilization of Major Downstream Industries:

• Polyether: 60.70% (down 1.20 percentage points)

• Propylene Glycol: 51.48% (up 1.73 percentage points)

• Glycol Ethers: 58.00% (stable)

6. Key Factors to Monitor in the Coming Week

1. Supply Adjustments: Changes in operating rates, particularly those linked to upstream raw material availability.

2. Downstream Purchasing Behavior: The extent of pre-stocking activity ahead of the April maintenance season.

3. Cost Support Sustainability: The durability of the current uptrend in propylene and chlorine prices, which remains sensitive to external geopolitical and macroeconomic developments.