Introduction: In late May, domestic 2-ethylhexanol (2-EH) production experienced consecutive cuts. By May 22, the domestic 2-EH capacity utilization rate had dropped to 70%, a decline of 20 percentage points from May 1. Against the backdrop of overcapacity, low operating rates for 2-EH plants have become the new normal for the industry.

1. Severe Losses in 2-EH Profitability

Entering May, domestic 2-EH market prices fell rapidly, while the decline in the feedstock propylene price was relatively smaller. As of May 21, the 2-EH price in the Shandong market was 7,850 yuan/ton, down 950 yuan/ton from the first working day after the May Day holiday, a drop of 10.80%. Although the propylene price also showed a downward trend, the decline was relatively slow. On Thursday, the Shandong propylene price was 9,110 yuan/ton, down 670 yuan/ton from May 6, a decline of 6.85%. The cost of raw materials for 2-EH decreased by 480 yuan/ton, while the product price dropped by nearly 1,000 yuan/ton. The industry's profitability shifted from marginal profit to severe losses, thereby dampening operating enthusiasm.

Looking at the 2-EH and its upstream/downstream chain, thanks to the significant price concessions made by 2-EH products, profits are currently concentrated in the plasticizer products, with DOP and DOTP earning 100-300 yuan/ton. As of May 21, 2-EH in the Shandong region was suffering a loss of about 600 yuan/ton, while propylene and 2-ethylhexyl acrylate products also experienced severe losses.

2. Moderate Downstream Demand; Slow Decline in Inventories

End-user demand remained lukewarm. During the raw material price decline, end-users mainly adopted phased procurement. The operating rates of main downstream plasticizer plants fluctuated within a narrow range, operating at medium loads. Plasticizer users maintained a just-in-time procurement pace for spot 2-EH. Due to a sharp drop in 2-ethylhexyl acrylate prices and profits, and severe losses, the operating rate of downstream 2-ethylhexyl acrylate plants decreased slightly this week, and is expected to drop more significantly next week. Considering the demand from the three main downstream sectors collectively, the overall consumption volume of 2-EH has not changed much.

Looking at the supply and demand data for the 2-EH market in May, the market was basically balanced this month. However, in early to mid-May, supply was ample, and industry inventory accumulation was quite noticeable. Oversupply was one of the factors dragging down the 2-EH market. Entering late May, under the pressure of costs and inventory, 2-EH plant operating rates gradually declined. The supply pressure in the spot market eased, and industry inventories slowly decreased. By this Friday, spot supply in the 2-EH market was notably lower than demand, and the pace of inventory decline accelerated in the last week of the month.

3. Significant Decline in Operating Rates; Reduced Competitive Pressure in the Industry

1. Weekly production in major producing regions continues to decline

This week through month-end, production in the main 2-EH producing regions decreased. Among them, the Shandong region saw the largest drop. The pressure on Shandong 2-EH to be sold to other provinces continued to increase in the second quarter of this year. At the same time, the region was impacted by supply from other areas. In May, within-region spot sales in Shandong were sluggish, leading to inventory accumulation at plants. Additionally, due to significant losses, multiple 2-EH plants in Shandong reduced output or shut down this week. By month-end, the weekly production of 2-EH in Shandong had decreased by about 0.77 million tons compared to mid-month. In the East China and North China regions, 2-EH products faced severe losses, prompting producers to lower operating rates. By month-end, weekly production in both regions had decreased by around 0.3 million tons each compared to mid-month. The industry is entering a phase of destocking, providing strong support for the market floor price.

2. Stable operations at core downstream sectors

The operating rates of downstream plasticizer plants fluctuated within a narrow range, with overall industry operations remaining stable. The 2-ethylhexyl acrylate sector experienced a significant decline in operating rates due to severe cost losses. Next week, the operating rate for 2-ethylhexyl acrylate plants is expected to fall to around 55%, a decrease of 15 percentage points from this week. Domestic just-in-time demand for 2-EH is expected to decline. However, with the 2-EH price temporarily bottoming out, export inquiries are increasing, and there is also planned just-in-time restocking at month-end. Demand expectations are fairly acceptable, with procurement mainly on a need-to-buy basis.

The feedstock propylene price is expected to continue its weak, volatile trend. In the short term, the Shandong propylene market is likely to fluctuate around 9,000 yuan/ton, meaning cost pressure on 2-EH remains significant. Considering the 2-EH market's supply-demand dynamics and costs, the near-term floor price for the 2-EH market appears relatively firm. Looking at the industry supply-demand pattern, 2-EH plant operating rates are likely to remain suppressed for an extended period. In the short term, as corporate inventory levels decline, driven by just-in-time restocking and cost pressures, the market has some potential for a modest rebound.