Dow Chemical Plans to Close Propylene Oxide Plant in Texas, While Prices Remain Bearish in Europe and USA

Propylene Oxide prices have remained under pressure across the USA and European market during the fourth week of June 2023, backed by moderate demand and sufficient supplies in the region. Fluctuation in the upstream values, volatile energy prices, along with improved supply dynamics have supported the downshift in the Propylene Oxide prices. Moreover, the macroeconomic uncertainties, such as spiraling inflation in the USA and European markets, rising interest rates, as well as weak economic recovery in China, have further faltered the market growth of Propylene Oxide.

Propylene Oxide prices have remained on the lower edge in the European market on account of consistent demand and sufficient inventories. The cost pressure from feedstock Propylene has remained inadequate as its prices progressed downward this week. Although upstream Naphtha prices have increased in the given time frame, it had a limited impact on the prices. On the input cost front, following the month of declines, Europe's Natural gas prices have increased in recent weeks amidst maintenance on Norway's gas processing plant. In addition, the inquiries from the downstream Polyether Polyol industries have stable to weak in the region amidst economic uncertainties. The downstream procurement was needed- on a demand basis as the enthusiasm of the terminal firms to enter the market was not strong, which weighed down the prices of Propylene Oxide in the regional market. Furthermore, the availability of finished stocks has remained sufficient; as a result, the operating rates have been low in the domestic market as producers avoid the excessive stockpiling of the product. Thus, in Germany, Propylene Oxide FOB Hamburg prices were offered at USD 1795/MT with a weekly decrement of 2.4% during the week ending 23rd June.

Similarly, in the US market, prices of Propylene Oxide have declined by 1.8% due to weak cost pressure from the feedstock Propylene. Demand from the downstream Polyether Polyol has stable as offtakes from the polyurethanes sectors have remained steady, thus squeezing the pricing dynamic of Propylene Oxide in the domestic market. Despite the improvement in the housing sectors and tightness in the labor market eased, the inflation rate continued to be stubbornly high, which led the US federal reserve to deliberate further rate hikes, which impacted the market sentiments of several commodities, including Propylene Oxide.

As per the market sources, Dow Chemical in Freeport, Texas, plans to close its Propylene Oxide plants by the end of 2025. The decision to close the manufacturing plant was part of the company's efforts to optimize its cost and supply profile. At the same time, the downstream Polyether Polyol plant will continue to operate after the Propylene Oxide plant is closed—currently, the Propylene Oxide plant in Freeport supplies feedstock for the polyol plant. Additionally, after 2025, the organization will consume its global Propylene Oxide assets or third-party suppliers to supply it to downstream polyol plants. Moreover, the company is also investing in logistics capabilities such as storage tanks, pipelines, and new barges to transport external Propylene Oxide to the site.

According to ChemAnalyst anticipation, in the upcoming weeks, Propylene Oxide prices are expected to increase but at a slower pace amid the restocking of the material by the producers. Demand from the downstream Polyether Polyol industry might be stable as high inflation may erode the purchasing power of end-user sectors. On the other side, upstream Naphtha and Propylene values are anticipated to rise, which might impact the production cost of Propylene Oxide. In the meantime, Natural Gas prices will increase in the backdrop of replenishing the inventory for next winter.