Overview:

The domestic propylene market continued to face downward pressure in June. On one hand, geopolitical tensions eased, dragging crude oil prices lower and weakening cost support for propylene. On the other hand, the supply-demand balance remained loose, with these dual bearish factors suppressing propylene prices. As of June 29, the monthly average propylene price in Shandong was 8,243 yuan/ton, down 11% month-on-month. Looking ahead to July, crude oil still has room to decline, providing insufficient cost support. While both supply and demand are expected to increase simultaneously, narrowing the basis, terminal demand is unlikely to see a significant recovery. Overall, the market lacks strong upward momentum and is expected to maintain low-level fluctuations.

I. Supply Side: Balancing Restarts and Shutdowns, Slight Production Increase in July

In June, geopolitical premiums continued to unwind, and propylene feedstock costs dropped significantly. Multiple domestic PDH units restarted and increased production rates, leading to a steady rise in industry output and a loose supply side. Data shows that the propylene capacity utilization rate in June was 68.9%, up 2.2 percentage points month-on-month. It is expected that the operating rate will rise further by 0.7 percentage points to 69.6% in July.

In July, planned maintenance at units such as Qixiang Tengda and Sierbang will compress output periodically. However, restarts at Ruihang, Guoheng PDH units, and various refinery units can offset the reduced output from maintenance, leading to a slight overall increase in production. Estimated monthly production is 5.12 million tons. However, due to uncertain fluctuations at some units, total production may vary within a range of 10,000 to 20,000 tons.

Risk Warning: Although geopolitical tensions in the Middle East have shown signs of easing, the market still has significant concerns about the future direction of the situation.

II. Demand Side: Differentiated Recovery in Downstream Operating Rates, Limited Terminal Demand Boost

Looking at downstream operating rates, there was a clear differentiation in June. Operating rates for key downstream units such as octanol, acrylic acid, and acrylonitrile all declined month-on-month, falling by 9.5, 11.6, and 0.5 percentage points, respectively. Only PP powder and propylene oxide saw increases, with month-on-month rises of 9.3 and 3.0 percentage points.

Entering July, low raw material prices are expected to improve profitability for most downstream products in the short term, potentially prompting multiple idled units to restart, leading to an overall increase in industry operating rates. Among them, octanol and acrylic acid are expected to see significant operating rate increases, with month-on-month rises of 9.0 and 8.4 percentage points, respectively. Gains for other categories are expected to be relatively limited.

Overall, although downstream derivative operating rates are expected to improve, the pace of terminal demand recovery remains slow, limiting the upside for derivative prices. If raw material prices rebound again, the current wide profit margins may not be sustainable for long. Downstream procurement is likely to remain demand-driven.

III. Supply-Demand Balance: Both Sides Rise Together, Surplus Pressure Persists

According to supply-demand calculations from Chempricehub, total domestic propylene supply in July is estimated at 5.26 million tons, with total demand around 5.17 million tons. The supply-demand gap narrows to 90,000 tons, indicating a slight easing of market oversupply pressure.

Overall, the supply and demand structure shows a pattern of bilateral growth. However, supply volumes remain relatively high, and downstream demand lacks sustained momentum for improvement, continuing to exert pressure on propylene prices.

IV. Market Outlook: Weak Expectations Unchanged, Low-Level Fluctuations in July

The propylene market in July will be dominated by fundamental logic. Parallel unit maintenance and restarts, coupled with expectations of increased import supply, will make it difficult to alleviate overall supply pressure. Low raw material prices will slightly improve downstream profits, leading to a modest recovery in operating rates. However, terminal consumption recovery is weak, and downstream product prices are softening, lacking long-term support for demand. Overall, the propylene price center is expected to maintain its downward trend in July, with the monthly average price likely fluctuating around the 7,000 yuan/ton range.

With many uncertainties in the subsequent market, industry players should closely monitor the following:

1. Maintenance, restarts, and operating rate changes for PDH and cracking units.
2. Crude oil trends and cost-side transmission changes under Middle East geopolitical disturbances.
3. Changes in downstream industry operating rates, profitability, and demand-based procurement performance.