In the first half of 2006, China's propylene oxide (PO) market experienced a significant shift in supply and demand dynamics. After a period of tightness due to the rapid expansion of production facilities, the market has now seen a more balanced situation, with prices gradually declining from previous highs. This change has created favorable conditions for downstream industries, which are now experiencing increased demand and greater consumption capacity.
During this period, the production capacity of PO in China rose by 26,000 tons per month compared to the same period in 2005. Major players such as CSPC and Shida Shenghua have launched new large-scale facilities, including a 250,000-ton unit and a 40,000-ton plant, respectively. Additionally, Shandong Binhua expanded its annual capacity by 20,000 tons. According to reports, 12 major PO plants operated at full capacity throughout the year, with overall output increasing slightly from 2005. The original 10 factories produced 22,000 tons more than the previous year, while two new plants added 85,000 tons to the total.
Domestic supply and demand for PO reached 410,000 tons in the first half of 2006, a 29% increase over the same period in 2005. Domestic production hit 362,000 tons, up 41% year-on-year, while imports dropped by 13,000 tons to 53,000 tons. Exports remained stable at around 500,000 tons.
The easing of supply-demand tensions has opened up new opportunities for downstream industries. For example, the alcohol ether, dimethyl carbonate, and propylene glycol sectors have benefited from an ample supply of raw materials, leading to higher production levels. Additionally, the drop in PO prices has stimulated demand in polyether and other derivative industries, especially given the rising cost of oil.
Propylene oxide is a key chemical feedstock used in the production of polyether polyols, which are essential for polyurethane manufacturing. It is also used to make propylene glycol, non-ionic surfactants, demulsifiers, flame retardants, and emulsifiers. Over the past 15 years, China’s PO demand has grown rapidly, rising from 50,000 tons in 1991 to 648,000 tons in 2005—a growth rate of nearly 12 times, with an average annual increase of 22.6%. In 2005, the polyether polyol industry consumed 550,000 tons, accounting for 84.9% of total consumption—far exceeding the global average.
With the development of China’s polyurethane industry, many new and expanded polyether polyol plants have been established, boosting self-sufficiency rates. By 2005, the self-sufficiency rate for polyether polyols reached 83.5%.
Other downstream derivatives, such as dimethyl carbonate and propylene glycol, are also playing a growing role in PO consumption. Dimethyl carbonate, used in polycarbonate production and as a gasoline additive, has seen explosive growth in domestic production capacity. Several provinces plan to expand their production further in the coming years.
Propylene glycol, used in unsaturated polyester resins, epoxy resins, and polyurethane resins, has also seen increased domestic production, thanks to projects like the 60,000-ton facility by China National Offshore Shell. With lower production costs, domestic propylene glycol output is expected to grow steadily, reducing import dependency.
Propylene glycol ethers, widely used as solvents in the synthesis of alcohol ether acetates, have a growing market. Although domestic consumption remains low compared to global averages, the sector shows potential for future expansion.
In the first half of 2006, import volumes of downstream products like propylene glycol and polyethers declined, while exports increased. This shift contributed to a monthly rise in domestic PO consumption of 0.4 to 0.5 million tons. Demand from rigid foam, CASE, and polymer polyol sectors remained strong, driven by local production initiatives and government policies promoting energy efficiency in construction. Meanwhile, the automotive and furniture industries continue to fuel steady growth in polymer polyol demand.
Looking ahead, the continued import substitution of downstream derivatives and the expansion of actual consumption capacity will be the main drivers of China’s propylene oxide market growth.
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