Propylene Market Performs Weak in Q1, and May be Range-Bound in Q2
In Q1, 2024, China’s propylene market underperformed due to weakened cost support and increased supply pressure. In Q2, 2024, there may be limited demand stimulation, with limited support from propylene costs and continued growth in supply. It is expected that there may be overlapped influence of supply and demand in the propylene market, with a possibility of slight price fluctuations.
In Q1, 2024, China’s propylene prices were range-bound, with the quarterly average price edging down quarter on quarter. In H1 January, China’s propylene supply and demand fundamentals performed well, as downstream producers stocked up before the Spring Festival holiday, and some PDH units took overhauls, lifting propylene prices. In February, PDH unit overhauls still supported propylene prices. However, the downstream cost pressure was high, and the demand for propylene remained sluggish, as end plants shut units down before the holiday, and resumed production slowly after the holiday. Under the overlapped influence of supply and demand, propylene prices fluctuated within a narrow range. From March, China’s propylene prices fell due to the increased supply pressure resulting from unit restarts, and limited downstream demand. In Q1, 2024, the propylene average price (in Shandong, in cash, self-delivery, tax-inclusive, the same below) was RMB 6,845/mt, down 2.48% quarter on quarter, and 7.06% year on year. As of March 29, China’s propylene prices closed at RMB 6,750/mt, down 4.25% from the beginning of the year.
In Q1, 2024, the highest propylene price was RMB 7,120/mt on January 23. The propylene prices increased, as the PDH units took unplanned turnarounds, and the propylene demand increased as the downstream producers stocked up before the Spring Festival holiday. The lowest price was RMB 6,450/mt on January 2, following the downward trend from the end of December 2023. The international crude oil prices decreased, and propylene sellers destocked intensively before the New Year’s Day, causing the rapid slip in propylene prices.
In Q1, 2024, the weak propylene market performance was directly influenced by the weakened cost support and increased supply.
The feedstock prices fell, so the cost support for propylene market weakened.
In Q1, 2024, the propylene cost support weakened, causing bearish impacts on propylene prices somewhat. The propylene feedstock prices trended downward quarter on quarter. Prices of steam coal, propane, Brent crude oil, and methanol fell, so the cost support for propylene market weakened, causing some bearish impacts on propylene prices. The quarterly average price of Ordos steam coal Q5500 was RMB 676/mt, down 8.93% quarter on quarter and 24.77% Y-O-Y. Thus, profits from coal-based propylene production became positive in Q1. Although the prices of crude oil, methanol, and propane trended downward, the profits from oil-based, methanol-based, and propane-based propylene production were still negative. The overall propylene profit performed rather weakly in Q1.
New capacity was continuously released, so market supply pressure increased.
The total propylene supply is expected to increase by 2.56% quarter on quarter and 10.97% year on year, causing bearish impacts on propylene prices somewhat. The propylene output in Q1 was 13,360kt, up 3.52% quarter on quarter. The propylene import volume is estimated to be 472.2kt, down 18.88% quarter on quarter. In Q1, the 600kt/a PDH units at Formosa Industries (Ningbo) and Ningbo Kingfa Advanced Materials Phase II were put into production, and the total propylene capacity was up to 64,760kt/a. Although due to the impacts of negative profits and maintenance, the propylene units restarted and closed frequently, the propylene output trended up in Q1. The overall propylene supply was ample, and some producers were under sales pressure, causing bearish impacts on propylene prices. Meanwhile, China’s propylene supply increased, occupying part of the imported sources, so the propylene import volume decreased quarter on quarter. However, the imported propylene accounted for a small proportion, so the impacts were rather limited.
The propylene demand increased but the growth was still lower than supply growth.
The total propylene demand was predicted to increase by 2.13% quarter on quarter, and 10.69% year on year, supporting the propylene prices. The total propylene demand was 13,540kt in Q1, up 2.13% quarter on quarter. The total export volume is predicted to be 21kt, up 5,791% quarter on quarter. The propylene downstream demand increased, giving support to propylene prices, though it was lower than the supply increase. Stimulated by China’s propylene supply increase, propylene export volume increased obviously in Q1. However, the export increment was relatively low, so its impacts on the propylene market were rather limited.
Q2, 2024 Forecast: Propylene prices may fluctuate within a narrow range under the overlapped influence of supply and demand.
Cost: Because of the global manufacturing industry recovery, inflation, and the risk premium increase resulting from escalation of the geopolitical situation, the crude oil prices in Q2 are expected to fall first and then rise, generally trending up. The propane market may continue to be weak, with the prices falling after a short-term fluctuation. The propylene feedstock prices may fluctuate little, so the support from the cost side may be weak.
Supply: The new propylene capacity may increase continuously, and the growth rate is expected to be higher than that of Q1. The Q1 new capacity was mainly in East China, while the Q2 new capacity may mainly be in Shandong. As the dominant area of propylene dealing, the propylene prices in Shandong will probably have impacts on the nearby even China’s propylene market.
Demand: propylene demand is expected to continue trending upward, but the growth of demand may still lower than that of supply. The profit producing from propylene downstream products may be normal, with some may be negative, giving thin support to propylene demand.
Overall, in Q2, the supply pressure may dominate propylene prices, with some tepid stimulation from the cost and demand sides. It is estimated that in Q2, 2024, propylene prices may fluctuate within a narrow range under the overlapped influence of supply and demand.
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