Propylene Returns to the 10,000 Yuan/ton Threshold; Short-Term Bullish Logic Persists

Lead-in: The domestic propylene market in China operated strongly this week, driven by multiple factors including robust cost support, tightened regional supply, and steady downstream essential demand. As of October 9, the mainstream average price of propylene in Shandong stood at RMB 10,295/ton, up 5.70% from September 30. Looking ahead, with solid cost support, continued tightening of regional supply, and remaining essential downstream demand, propylene prices still have upside potential. However, constrained by downstream demand in the medium-to-long term, a market correction remains possible.

I. Supply Side: Plant Fluctuations Becoming More Flexible; Regional Supply Continues to Tighten

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

Data Source: Chempricehub Information

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

Data Source: Chempricehub Information

This week, maintenance activities increased among propylene units in the Shandong region. Lianhong New Materials' 220,000-ton/year MTO unit shut down on October 9, with an expected maintenance period of half a month. Combined with the earlier shutdown of Qilu Petrochemical's catalytic cracking unit, a reduction in regional supply has become evident.

Regarding production and operating rates, daily propylene output in Shandong was 31,100 tons on October 9, a decrease of 700 tons from 31,800 tons on September 30, representing a 2.20% week-on-week decline. The capacity utilization rate fell to 61.0%, down 1.3 percentage points from 62.3% on September 30. The drop in output was primarily due to the confirmed shutdown of Qilu Petrochemical's unit, compounded by the new shutdown at Lianhong New Materials. Although some individual units increased their load to offset part of the loss, overall regional propylene output still declined.

In the short term, attention should be focused on the progress of the shutdown of North Sea Hiway Petrochemical's 500,000-ton/year PDH unit. Its existing long-term contract customers may shift procurement sources to the Shandong region, increasing external purchasing demand. This will continue to digest regional spot inventories and provide support for propylene prices in Shandong.

II. Demand Side: Limited Unit Fluctuations; Essential Demand Provides Strong Support

During this period, propane feedstock prices remained strong. Although propylene spot prices maintained a bullish trend, the increase was insufficient to cover the rise in raw material costs, leading to a rapid decline in industry profitability. PDH profits dropped by RMB 804/ton compared to September 30. Downstream derivatives were also pressured by the significant rise in propylene feedstock costs, resulting in varying degrees of profit compression. Specifically, 2-EH profits fell by RMB 339/ton compared to September 30, and acrylonitrile profits dropped by RMB 769/ton. Despite the weakening downstream profitability, no obvious negative feedback loop has formed in the market yet.

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

Data Source: Chempricehub Information
Note: This data represents theoretical values calculated based on product output and unit consumption, intended only as a trend reference.

Regarding downstream units, fluctuations in the Shandong region were limited during this period: only Qilu Petrochemical's 85,000-ton/year 2-EH unit restarted on October 9, while Lianhong New Materials' 200,000-ton/year PP unit shut down on October 10. The theoretical demand reduction expanded to 2,100 tons.

Looking ahead, there are expectations for further changes in unit operations within the region. Key focus should be on the anticipated shutdown of Jineng Line II's 450,000-ton/year PP unit and the restart of Jibo's 400,000-ton/year PP unit. The simultaneous shutdown and restart of these two units will create a hedge in demand, influencing the outlook for propylene demand.

III. Price Spread Side: Narrow Spread Between PP Powder and Propylene; Weak Procurement Follow-through

During this period, dragged down by persistent volatility and strength in raw material prices, the price spread between PP powder and propylene continued to narrow. As of October 9, the spread stood at RMB 285/ton. Going forward, geopolitical disturbances will continue to support the raw material side, keeping propylene prices in high-level consolidation with limited room for correction. Meanwhile, PP prices may struggle to keep pace due to constraints from end-user terminal demand, suggesting that the tight spread between the two products is likely to persist. Close attention must be paid to the impact of demand contraction caused by reduced loads or shutdowns at PP plants, as well as supply risks arising from increased external sales of propylene by integrated units.

IV. Outlook: Short-term Highs Maintained; Medium-to-Long Term Correction Expected

Cost Side: Statements from both the US and Iran indicate ongoing negotiations, easing concerns about geopolitical conflicts. However, hurricanes continue to suppress US crude oil production, making it probable that international oil prices will remain in high-level consolidation. Simultaneously, arrivals of propane and methanol remain low, keeping their prices elevated and providing solid cost support for propylene.

Supply Side: A 600,000-ton/year naphtha-based propylene unit in Yantai, Shandong, has entered a technical transformation cycle. Additionally, Zibo Xintai's 100,000-ton/year catalytic cracking unit faces potential shutdown expectations, leading to continued tightening of overall regional propylene supply. Furthermore, uncertainties remain in the supply of upstream raw materials such as crude oil, naphtha, propane, and methanol, leaving open the risk of operational fluctuations at currently running units.

Demand Side: Within the region, the anticipated shutdown of Jineng's 450,000-ton/year PP unit and the restart of Jibo's 400,000-ton/year PP unit will partially offset each other in terms of propylene demand. At the same time, sustained high propylene prices have intensified downstream cost pressures, somewhat dampening overall purchasing enthusiasm. Moreover, the narrow price spread between PP and propylene limits the support for raw material procurement at PP plants, and integrated units still pose a potential risk of external propylene sales.

Comprehensive View: In the short term, strong cost support and tightened regional supply, combined with remaining essential downstream demand, suggest that propylene prices still have upside potential, with the mainstream average price likely operating around RMB 10,500/ton. Subsequently, as downstream cost pressures intensify further and demand becomes a constraint, a market correction is possible, with prices potentially finding support around RMB 10,000/ton.