Propylene Oxide, an essential feedstock for polyurethane, could face a significant deflating trend in the coming months as the USA's housing and construction sector readjusts itself to the market dynamics. The USA recorded rising inflation in August, from 3.2% to 3.7%, and is expected to continue the trend in September as well. Rising inflation and basic chemical prices will be transferred down the consumer's pocket with global demand slowing down, making housing and other resource unaffordable to a common USA citizen.

Propylene Oxide is an important feedstock derived from hydrocarbon. Pricing of Propylene Oxide continues to remain stable in September to a significant extent at FOB Louisiana USD 1560/MT in the week ending on 22nd September 2023. While the US is self-sufficient in Propylene Oxide, it is a major exporter. Prices of Propylene Oxide continue to remain stable in the United States, primarily due to the rising demand from China, which is substantially compensating for the demand shortfall from Europe. On the domestic front, major consumers of Propylene Oxide and its downstream, including the construction sector, are nearly two-thirds of polyurethanes. As the US Federal Reserve raised interest rates in July to 5.25-5.5%, the mortgage rates for homeowners kicked up to 7.2%, making it unaffordable. In due course, the housing demand slowed down and now is on a bearish trend despite inflation cooling off relatively. Consumers are pulling off their purchases, further pushing down the demand. With the OPEC+ oil production cut extended, the tightening of the oil supply is creating further pressure in the petrochemical units, especially feedstock pricing, delivering a bullish trend. Multiple vendor inquiries revealed that the US, though self-sufficient in oil supply, is inflating substantial inflation through imports from China, Europe, the Middle East, etc. Inflations Reductions Act 2022, expected to generate significant demand for polyurethanes and Propylene Oxide, will help the USA diversify its supply chains. The automobile and automotive sectors continue to provide significant demand for making the entire value chain of Propylene Oxide sustainable despite high inventories of passenger vehicles observed with the retailers.

In European and Asian markets, Propylene Oxide showed a diverging trend. While European stocks began the bearish trend, Chinese stocks continued to be bullish. Despite unsatisfactory forecasts of Chinese growth in H1 2024, China continues to procure significant volumes of Propylene Oxide from the US, Saudi Arabia, etc., to boost its real estate and construction sector. The end-use of the automobile sector also significantly contributes to the demand for Propylene Oxide in China.

ChemAnalyst's internal study on Propylene Oxide forecasts a global demand decline as the global economy continues to slow down and inflationary pressure rises along with a seasonal pattern of demand and consumer sentiments. Market players continue to stock up on Propylene Oxide in Asian markets despite high prices, as demand from India and China in the construction sector is expected to grow in the infrastructure sector.