Over the past two weeks, the energy prices in Europe and North America have been showing a bullish trend. Rising energy prices have deep downstream consequences, especially in the petrochemicals sector. Propylene Oxide, derived from olefin Propylene, is a major constituent of Polyurethane polymers.

Beginning in August, it was observed that the pricing of Propylene Oxide started showing a rising trend in European markets like Germany, Netherlands, etc. Inquiries with the market participants revealed that the rising Propylene Oxide pricing is pushing European manufacturers to the verge of bankruptcy. It was maintained by the participants that “rising energy pricing” coupled with the rising crude prices have been the major reasons for the manufacturers to worry. An official from a major manufacturer has asserted that the ‘energy pricing’ is crucial for Propylene Oxide and other Epoxides since these products are energy-sensitive feedstocks as inflationary and recessionary pressure surges throughout the EuroZone, including the UK, a rise in key interest rates by the Bank of England and European Central Bank is expected to curtail further the demand from the consumers, which could be sensed across the Propylene Oxide value chain.

Quotations of Propylene Oxide price in Germany were assessed at USD 1730/MT FOB Hamburg in the fourth week of August. The Market participants have revealed that feedstock inventories were maintained at lower levels due to high maintenance and labor costs that Europe is currently struggling with. This was also replicated in the maintenance of lower Propylene Oxide inventories. Manufacturers of Propylene Oxide and their derivatives have asserted that the “optimum” operating rate now is at the lower end of the capacity. They forecast that the demand is expected to be gloomy till H1 2024. A manufacturer from the Netherlands has informed ChemAnalyst that the automotive sector is holding too large inventories of the downstream polyurethanes and polyols, which need to be destocked. Automotive sales are the largest end-use consumer of the Propylene Oxide value chain. Europe’s passenger vehicle sales, especially in the EV section, have shown good growth, one of the main factors driving the Propylene Oxide businesses across Europe.

Another reason for stability in the pricing of Propylene Oxide and its value chain is the construction sector. EU27 is implementing energy efficiency improvements in the existing households, which is generating the demand for Propylene Oxide from the construction sector. Overall, the construction sector with new projects included is showing a downward trend. Rising prices of Propylene Oxide down the value chain are expected to hurt the end-use consumers already facing the consequences of high inflation, unemployment, and neutral to negative disposable incomes.

Europe is heavily investing in the Renewables section. While Germany, Netherlands, and Belgium have taken the course of renewables, France is betting heavily on nuclear to supply energy. European Propylene Oxide is uncompetitive in the international market due to its high energy costs. One estimate given by CEFIC is that European energy is 4.7 times costlier than American gas. In order to bring Europe back into the global competitive market, a coherent strategy and a uniform, resilient supply chain are needed.