European Propylene Oxide Prices Maintain Stability Amidst Headwinds in the Early Days of January 2024

Rotterdam (The Netherlands): Propylene Oxide prices dropped in the last days of December, partially due to downturns and weak wholesale demand sentiments. Markets observed labor tightening, weather challenges, and festivities in Europe. Despite GDP growth slowing down to 0% and inflation cooling off from 7% to 3.4% by Jan 2024, Propylene Oxide prices remained 14.8% higher than pre-pandemic prices across Europe in the early days of January. The Propylene Oxide market in Europe continues to remain elevated compared to pre-pandemic levels, despite slowing demand.

In European markets, Propylene Oxide prices showed a marginal uptick amidst rate cut optimism persisting globally, as the US Federal Reserve previously signaled three rate cuts in FY24. Downstream propylene glycol and polyol markets experienced an uptick in procurement activities in Europe. The tightening of Propylene Oxide supply in the US markets continued to affect current prices in Europe due to an influx of higher imports amidst downturns.

Upstream propylene markets turned bullish suddenly amidst the shipping container crisis due to Houthi attacks. Feedstock for propylene glycol prices increased by 10% on a CIF basis by January 12, 2024. Propylene Oxide demand is currently slowing down in Europe, largely owing to EU member countries reducing government subsidies for refurbishment and energy-efficient transitioning introduced during the COVID years. Italy has cut off the 'super bonus' scheme funding due to rising deficits and cooling off inflation.

Repsol Quimica, a Spanish producer of Propylene Oxide, is undertaking maintenance of their plant amidst weaker supply of raw materials and lower demand sentiments. Germany in FY24 has cut off subsidies on electricity and heating oil subsidies. Market participants anticipate that with the current level of consumption, the upstream Propylene Oxide market is expected to be at the lower end this year, and prices are anticipated to deflate on a YoY basis further to reduce cost pressure on the construction sector.

One market participant argued that the European Central Bank may reduce interest rates by H2 FY24, as domestic inflationary pressures in the Propylene Oxide value chain continue to persist. Demand from downstream polyurethanes is headed for decline in Europe, affecting upstream Propylene Oxide demand largely due to the slowing of new work orders. The craze for sustainability amongst EU consumers is slowing, as the cost of compliance and maintenance coupled with current high-interest rates is unsustainable for consumers. Consumer cosmetic and retail purchases continued to remain lower than expected in the winter of FY23, with Italian markets currently observing a strong shopping season in the first days of January 2024.

In American markets, Propylene Oxide prices moved along with the European markets, largely owing to a strong winter demand slump. The Inflations Reductions Act 2022 induced energy-efficient transition, driving a larger demand for insulating polyurethane foams, improving consumer sentiments. Propylene Oxide prices have begun to improve amidst uncertainty in deliveries to trans-Atlantic partners and the domestic market increasing their newer orders amidst longer lead times by shipping companies. ChemAnalyst forecasts that prices are anticipated to improve till the end of January, largely owing to costlier inventories and increasing inventory stocks. Destocking of Propylene Oxide is expected to follow since demand sentiments from downstream and consumer markets are expected to be on the lower end in the coming month.

Chinese markets are observing the stabilization of Propylene Oxide prices in the early days of 2024, largely owing to market equilibrium amidst destocking and overcapacities. Polyol demand for polyurethanes remained subdued in China, coupled with lower consumption, as inflation and producer prices were reported to be negative by the National Office for Statistics.

Propylene Oxide prices are expected to be largely stable or decline in FY24, with recovery in stable demand expected in FY25.