China's Propylene Oxide: Sharp Profit Decline in H1 2025

In the first half of 2025, China's chlorohydrin-based propylene oxide (PO) production cost averaged RMB 8,097 per ton, with a loss of RMB 520 per ton - a 346.44% decline compared to the same period last year and a 664.95% drop from the second half of 2024.

The sharp profit erosion mainly stems from the fact that the decline in PO market prices outpaced the drop in raw material costs.

For propylene, a key feedstock, prices fell both YoY and MoM in H1 due to deepening supply-demand imbalances. New production capacities came online amid persistently weak demand, creating a long-term bearish environment of rigid supply increases against insufficient demand elasticity - driving a continuous decline in China's propylene market.

Liquid chlorine, another critical raw material, also saw price declines YoY and MoM. The strong performance of caustic soda in H1 2025 boosted producers' profitability, which in turn kept liquid chlorine - a by-product - from rebounding in price. Even during brief supply-tightening phases, liquid chlorine prices occasionally turned positive but quickly fell back under pressure from weak profitability in downstream sectors like PVC and propylene oxide, limiting any sustained price recovery. The average price of liquid chlorine in H1 hovered around RMB -159 per ton.

As for propylene oxide itself, newly expanded capacities continued to come online throughout H1, keeping supply ample during most periods. On the demand side, the traditional "peak season that never peaks" phenomenon persisted. Additionally, factors such as international tariffs, geopolitical tensions, and rising ocean freight costs weighed on downstream industries and their product demand at various times.

Amid these intertwined pressures, China's propylene oxide prices experienced a volatile downtrend in H1 2025, repeatedly hitting new lows not seen since April 2020.