Propylene Oxide (PO) prices experienced a decline of USD 15/MT, driven by falling propane prices and the stabilization of propylene costs. While the conversion of PO into Polyols and Propylene Glycol (PG) continues, the pace has slowed due to easing demand in the cosmetics and food-grade PG sectors. The Polyol market in the U.S. has also stabilized as production rates decreased, with lower conversion to higher-grade Polyols reflecting reduced demand for polyurethane (PU).

Crude oil prices dropped by over 9% this week due to decreased sales, with domestic consumption in the U.S. moderating amid weakening business confidence. Cost pressures are cascading through the intermediate value chain, as the end-of-month Labor Day holidays further dampened market activity.

PO supply in the U.S. improved this week as procurement slowed, reflecting reduced demand. Adequate stock levels, combined with higher outages and lower spot propane prices, contributed to the downward trend in PO pricing. Additionally, increased output from Propane Dehydrogenation (PDH) plants is expected in anticipation of the upcoming global trade session, set to begin in mid-September. Refinery operations have also improved, reaching 93% in the last week of August, easing supply pressures on feedstocks.

Despite these improvements, the decline in new orders has led to a reduction in material demand, resulting in shorter delivery times from suppliers. However, material costs surged at the fastest rate in 16 months, driving up prices for finished products. The beginning of September saw supply constraints for PO due to capacity reductions in Louisiana and Texas, exacerbated by tropical storms and other disruptions.

On the demand side, factors for PO softened as downstream sectors like automotives slowed and cost pressures persisted. The pace of this slowdown eased somewhat in September as labor challenges continued to impact demand. Concerns over potential port and Canadian rail strikes further prompted major PO producers to cut production, lowering demand in the U.S. market. The U.S. manufacturing sector also saw a decline in August, with production of Polyols decreasing amid falling sales and demand. Inflationary pressures compounded the issue, leading to a drop in new business. Export orders decreased, affected by geopolitical tensions, while inventories of unsold PO at ports increased, contributing to downstream price adjustments.

The tire market also saw price drops in August, as lower consumption, coupled with higher interest rates, reduced demand. However, September began with positive signs for PO consumption. The U.S. Bureau of Labor Statistics reported significant job growth in the construction sector, with hiring in August exceeding the average monthly rate by 60%. This suggests higher demand for PO-derived Polyols and PG, along with increased downstream propylene orders.

Looking ahead, ChemAnalyst forecasts a bullish trend for Propylene Oxide prices, to be driven by supply disruptions and rising procurement in the construction sector. With the summer season expected to extend into September, construction demand is projected to peak by October, which may put an additional upward pressure on PO and PU markets. Increased trade activity with the Asia-Pacific (APAC) region, along with elevated water levels and higher freight rates heading toward APAC, are expected to further boost PO production, particularly for deliveries bound for northeastern markets.