Intensified bullish and bearish market dynamics; short-term propylene likely to undergo a pullback and consolidation

Lead-in: During this period, the domestic propylene market was boosted by both cost support and concentrated downstream restocking at lower prices, leading to another upward trend. As of October 26, the mainstream average price of propylene in Shandong stood at 11,000 RMB/ton, a 4.12% increase compared to October 19. Looking ahead, the realization of supply-side capacity changes has been slow. Meanwhile, raw material costs remain high, squeezing profits for downstream derivatives and weakening their willingness to follow higher propylene prices. The tug-of-war between supply support and demand suppression has intensified bullish-bearish dynamics, suggesting that short-term propylene prices will likely undergo a phased correction.

I. Supply Side: Regional Output Slightly Declines; Tightening Continues to Provide Support

Table 1: Daily Propylene Production and Capacity Utilization Rate Comparison in Shandong (10,000 tons, %)

Data Source: Chempricehub

Table 2: Status of Selected Units in Shandong (10,000 tons/year, 10,000 tons)

Data Source: Chempricehub

Overall unit fluctuations in Shandong's propylene sector were limited this week, with the addition of a shutdown for maintenance at Qicheng Petrochemical’s 70,000-ton/year FCC unit.

In terms of production and operating rates, Shandong’s daily propylene output on October 26 was 30,100 tons, a decrease of 100 tons from 30,200 tons on October 19, representing a 0.33% decline. The capacity utilization rate fell to 62.5%, down 0.2 percentage points from 62.7% on October 19. Although daily output from Zibo Junchen increased during the period, this gain was offset by the reduction from Qicheng Petrochemical’s shutdown, resulting in a slight overall drop in regional production which provided some floor support to prices.

Looking forward, Jineng Chemical’s PDH unit is expected to shut down by the end of the month. Combined with planned shutdowns of PDH units outside the region (such as Bohua Chemical), overall production is poised to tighten further. This expectation of reduced supply continues to support propylene prices, keeping the market bias towards strength.

II. Demand Side: Concentrated Downstream Maintenance Increases; External Procurement Demand Weakens

During this period, propane prices fluctuated and declined, while spot propylene prices surged significantly again, boosting profitability for the PDH process by 536 RMB/ton compared to October 19. However, downstream sectors faced pressure from high propylene feedstock costs, leading to generally weakened profits. Specifically, losses for acrylonitrile expanded by 777 RMB/ton compared to the previous period, and losses for PP powder increased by 285 RMB/ton. Only propylene oxide (PO) saw relatively mild profit erosion, with earnings declining by just 21 RMB/ton.

Table 3: Fluctuations in Selected Downstream Units in Shandong (10,000 tons/year, 10,000 tons)

Regarding downstream units, fluctuations increased significantly in the Shandong region this period. Multiple production lines for PP, propylene oxide, and phenol/acetone have gradually shut down for maintenance, reducing theoretical demand by 3,800 tons.

Looking ahead, only Qingdao Haiwan’s phenol/acetone unit and Shandong Jinling’s PO unit are expected to restart in the short term. Most other PP and PO units will remain offline, keeping overall downstream operating rates low. Consequently, rigid procurement demand for propylene remains weak, offering limited support to the market from the demand side.

III. Price Spread: Propylene Rebound Compresses Spreads; Buyer Follow-through Under Pressure

This period, after an initial dip, raw material propylene prices surged again, narrowing the previously loose spread between PP powder and propylene. As of October 26, the spread between the two was only 200 RMB/ton. The persistently narrow spread squeezes profit margins for PP powder producers, dampening their enthusiasm for purchasing raw materials, resulting in weak buyer participation.

Looking forward, while propylene faces potential correction, whether a profitable spread can be re-established depends on two factors: first, the extent of the propylene price decline, and second, the supportive strength of the PP powder market itself. If the spread widens subsequently, procurement demand from PP powder plants may recover. However, if the spread remains low, buyer support from the PP sector for propylene will continue to be limited. Additionally, risks regarding integrated facilities selling raw materials should be monitored.

IV. Outlook: Bull-Bear Dynamics Intersect; Short-Term Correction Pressure Exists

In summary, the pace of supply-side reductions has been slower than expected, meaning the benefits of tighter supply have not yet fully materialized. Raw material costs remain elevated, significantly squeezing downstream derivative profits and reducing acceptance of high propylene prices. The counterbalance between supply support and demand suppression has intensified bull-bear negotiations, pointing towards a phased correction in short-term propylene prices. The mainstream trading range for Shandong propylene is expected to be 10,500–11,000 RMB/ton in the short term.

For the medium-to-long term, key focus areas include the actual implementation of shutdowns at Jineng Chemical and Bohua Chemical PDH units, as well as the progress of restarts at Zhenhua Petroleum units. Concentrated start-ups and shutdowns among upstream facilities will reshape the regional supply-demand landscape, thereby having a substantive impact on the Shandong propylene market.