CEH Report

Table of Contents

Abstract

Propylene oxide (PO) is a colorless, low-boiling liquid. It is an epoxide and therefore is a reactive chemical intermediate. As one of the smaller-volume differentiated petrochemicals, propylene oxide is used principally in the manufacture of polyether polyols for urethanes, propylene glycols, glycol ethers and polyalkylene glycols for a variety of chemical intermediates and functional fluids.

The effects of the current severe global economic downturn have been taken into consideration for the world propylene oxide analysis in this report. Economic conditions deteriorated severely in the last quarter of 2008 and continued unimproved into the middle of 2009, such that world year-over-year comparisons are mostly negative for all propylene oxide end uses. While the economy seems to have stopped contracting, forecasts for the last two quarters of 2009 reflect a bottoming-out process for volume sales and revenue. Over 2008, worldwide consumption of propylene oxide in its derivative uses fell only 3% from 2007. This will not be the case in 2009 as production and consumption are forecast to drift lower by 5% as the full brunt of the severe recession is felt. Propylene oxide is affected by recessions because its principal durable urethane markets, such as construction, transportation and furniture, are usually particularly depressed. As such, the decline forecast for 2009 will reflect both a severe reduction in pull-through demand as well as inventory in the supply chain.

Western Europe will remain the largest regional consumer of propylene oxide during the next five years. While the United States will be the largest consumer of propylene glycol, at a 25% world share, it will continue to hold the second overall PO consumption share in 2013. China will increase its consumption by 40% over the next five years.

The following pie chart shows world consumption of propylene oxide:

In spite of rising energy prices through most of 2008, with crude oil touching nearly $150 per barrel, world propylene oxide revenue decreased only around 3% as prices held steady. Additional pressure on margins, with oversupply during 2009 combined with lower oil prices ($50–60 per barrel) and raw material prices, mean that propylene oxide prices will fall along with sales volumes. As a result, world sales revenue should be 40% lower in 2009 compared with 2008.

The severity of the current petrochemical recession is demonstrated by 2009 world GDP, which is expected to register just slightly negative growth based on a purchasing-parity basis—the lowest figure recorded since world data have been aggregated. However, analysis points to a rebound of demand over early to mid-2010 through 2011, fed by increasing world GDP including restocking of the inventory supply chain in developed countries.

The forecast world propylene oxide consumption decline over 2008–2009 would be lower if not bolstered by Asian demand and its fastest growing component, China. Chinese demand should average 3% per year growth over 2008–2009. Nevertheless, propylene oxide sales are expected to be particularly dismal in the mature economies of North America, Western Europe and Japan, where demand will shrink 5–15% per year over 2008–2009.