European Propylene Oxide prices have remained subdued in June 2024 as oversupply and weak demand weighed down the prices. Lower propylene prices in the upstream also added in the negative price pressure as Propylene CIF Germany declined by 5%. Downstream polyether polyol supplies surpassed demand in June, which resulted in an integrated bearish movement across Propylene Oxide value chain. Bearish sentiment in propylene prices was largely owing to weaker PP demand in Q2.

Price movement tracked by ChemAnalyst for Propylene Oxide FOB Hamburg deliveries in June declined by 3% M-o-M basis. Crude oil prices in Q2 remained elevated from USD 84/barrel to USD 85/barrel in June, 6% higher than Q1 2024 median prices. This has added price pressure over Naphtha and Propylene Oxide downstream prices for Q3. Inquiries with the market participants in Q2 revealed major challenges pertaining to supply side disruption arising out of high LNG prices, high Propylene Oxide inventory carryover from Q1 and lower export movements to Asia and other regions due to high freight charges. Freight charges moved from USD 4880/TEU in the first week of April to USD 7334/TEU assessed for some deliveries made out of Rotterdam to Shanghai, according to China Containerized freight Index. Freight movements remained 26% higher than March peak. Upward revisions in surcharges by freight companies added further logistics pressure and markets preferred to hold out on their inventories in spot markets.

The Markets have not been bearish overall, demand for Propylene Oxide, assessed by ChemAnalyst remained higher YoY basis for the second quarter. Elections slump in Europe weighed on consumer as well as producer demand in Q2 as UK as well as EU had elections this quarter. The supply side situation changed this quarter with Propylene Oxide’s Repsol Tarragona coming online by the end of May. Force Majeure on Propylene Oxide supplies by LyondellBasell was also lifted off in May as geopolitical risks and freight unavailability in Europe reached strong production volumes in June as demand ‘forwarded’ as geopolitical risk remained elevated. Production of Propylene Oxide for overseas deliveries remained high this quarter as major downturns and maintenance works were achieved in Q1. While higher propylene availability due to Shell and INEOS crackers across Europe increased their throughput as secure energy supply and cheaper contracts continue to expand margins and availability of operational credit, markets expected price stabilization this quarter. However, one market participant from Netherlands revealed that geopolitical risks forced major companies to forward their feedstock supply and increase production to keep Europe out of price shocks during the second half of 2024, when rate cuts and rise in consumer demand is expected.

Propylene Oxide prices are expected to surge in Q3 2024 on the back of high cost transfer through contracted volumes raising FOB Hamburg Germany prices to USD 1700/MT peak pricing by August as more rate cuts and business confidence improves in Europe.