Lead: In May, the domestic propylene oxide (PO) market continued its gradual decline amid a persistent tug-of-war between cost support and weak demand. Recently, a phase of stabilization and rebound was achieved, relying on active supply-side output reduction. The ex-works price in the Shandong cash market rose from 9,000 RMB/ton to 9,700 RMB/ton. However, at current levels, the impact of earlier favorable factors has weakened, demand remains relatively sluggish, and the market has slightly loosened, turning weak again. It is expected to return to a narrow-range fluctuating trend after a potential small decline at the end of the month.

Supply: Short-term output reduction boosts rebound; subsequent increase and inventory may suppress positive factors

Table: Comparison of Daily Domestic PO Output and Capacity Utilization Rate

| Item | May 1 | May 27 | Difference | Change | June 1 Est. |
| --- | --- | --- | --- | --- | --- |
| Daily Output (10k tons) | 1.81 | 1.56 | -0.25 | -13.81% | 1.54 |
| Daily Capacity Utilization | 68.01% | 58.53% | -9.48% | - | 57.90% |

Source: CMEI

From the supply side, as of May 27, domestic daily PO output decreased by 0.25 million tons from the beginning of the month to 15,600 tons, with capacity utilization dropping 9.48 percentage points to 58.53%. Since mid-month, due to continuous price declines and loss-making operations across various processes, units at Zhonghai Jingxi, Yida, and Jincheng Petrochemical successively halted for maintenance. Zhenhai Phase I underwent scheduled maintenance. Including Shenghong Petrochemical's annual maintenance on the 28th, total capacity under shutdown from mid-month to date reached 1.015 million tons/year. Additionally, many units experienced short-term output fluctuations, which served as the main support during the recent uptrend.

Looking ahead, daily output and operating rate changes are narrowing. Incremental supply may come from potential restarts of some reduced-load units (e.g., Wanhua Phase IV possibly restarting in June, Ruihang potentially increasing load). Output reduction will stem from Shenghong's end-of-month shutdown, with attention on whether Satellite will undergo maintenance in June. No other definite fluctuation plans are in place. However, considering that some shut-down units still hold significant inventory and may sell opportunistically, supply-side positive factors are expected to weaken somewhat in June.

Demand: Weak downstream inhibits market; limited support under off-season expectations

Figure: Trend comparison of weekly capacity utilization rates for domestic PO and major downstream products (2025-2026, %)

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Source: CMEI

On the demand side, since mid-to-late April, domestic and foreign trade orders for downstream products have mostly declined, with many products experiencing inverted pricing. Overall capacity utilization rates fell, suppressing consumption of PO and serving as the main reason for PO's continuous price decline in early-to-mid May. During the recent uptrend, at the PO price level of 9,000 RMB/ton, downstream buyers saw limited risk and replenished essential needs, leading to a rebound in new orders. However, the momentum was insufficient. Since last weekend, new orders have turned weak again. When PO prices exceed 9,500 RMB/ton (Shandong cash ex-works), downstream sentiment cools, and follow-through support is relatively sluggish.

Looking ahead, competition in downstream sectors persists. With the hot weather season approaching (June-July) and relatively weak seasonal demand, expectations are not very optimistic. Demand is expected to be mainly stage-based, essential-needs-driven follow-up. Additionally, units at Zhebei Dafeng and Tongling for propylene glycol are scheduled to halt for maintenance, providing limited support for PO.

Cost: PO-propylene price spread turns positive, but multiple processes remain loss-making

Figure: Trend comparison of domestic PO-propylene price spread (2025-2026, RMB/ton)

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Source: CMEI

During the wide decline of PO this month, although the main raw material propylene showed an overall trend of highs declining, its average price was narrowly 0.69% higher than April. Near PO's interim lows in mid-to-late May, the PO-propylene price spread once operated in an inverted state, causing losses across all processes and dual pressure from costs and inventory. After passive load reductions and output cuts, the market stabilized and rebounded. As of May 27, the PO-propylene price spread returned to 625 RMB/ton.

Looking ahead, both propylene and liquid chlorine are expected to run narrowly weak in June. The loss-making status for various PO processes is unlikely to change in the short term. Cost support for the PO market is expected to remain limited to moderate underpinning during downturns, potentially affecting supply-side unit load adjustments.

Outlook: Short-term weak consolidation; returning to narrow-range fluctuation

In the short term, downstream acceptance of current price levels has decreased. Without clear support, prices may gradually loosen and decline. As many units remain under reduced load, the downside process may be relatively slow. After some scheduled maintenance shutdowns are realized, the market may stabilize and digest again.

In the medium-to-long term (June-July), costs are expected to narrow downward. Supply-side increases and decreases will both be minor. Demand-side support will be insufficient due to the off-season. The market is likely to gradually return to rationality, consolidating in a narrow range with mild losses.