USES

The largest consumer of propylene oxide (PO) is polyether polyols, which are used to make polyurethanes (PU); this sector accounts for 55-60% of PO consumption. The second largest derivative is monopropylene glycol (MPG) at 25-30%. The remaining 10-20% comprises of propylene glycol ethers, flame retardants, synthetic lubricants, oilfield drilling chemicals, butanediol (BDO), propylene carbonate, allyl alcohol, isopropanolamines, modified starches and textile surfactants.

SUPPLY/DEMAND

During the first half of 2017, PO supply in Europe was reduced. This was mainly linked to LyondellBasell’s planned, albeit lengthy, maintenance turnaround at its Botlek site in the Netherlands during the spring of 2017 and the force majeure on Shell/BASF’s joint venture PO/styrene monomer 2 (SM2) unit at Ellba in June/July. PO supply has not only been impacted by a spate of PO related output issues, but tightness in the upstream propylene market also had a bearing on PO availability.  On top of output constraints, PO demand has been healthy, particularly from the main downstream polyurethanes market, among others, which has further compounded an already tight PO market in the first half of 2017. By mid September 2017, there were signs the market became more balanced. While there was the Hurricane Harvey impact in the
US at this time, which affected PO and derivatives for some players, there was little-to-no direct effect on PO supply in Europe.

PRICES

The majority of European PO monthly contract prices are formula related and follow 80% of the upstream propylene monthly contract price movement.  During Q1 2017 and into early Q2 2017, PO contract prices trended up, on the back of firmer upstream propylene contract costs. In early August, the hybrid PO contract and freely negotiated price assessment was discontinued and replaced by the monthly formula only contract price range, which had been added in July 2017, to reflect the majority of business concluded.

TECHNOLOGY

There are various types of PO production technology. The two older more traditional PO production routes are either by chlorohydrin or by epoxidation. The propylene chlorohydrin route involves converting propylene to propylene chlorohydrin and then the chlorine is removed. This process is highly polluting from a waste perspective and it also uses a significant amount of chlorine. A main example of the epoxidation process is the PO/styrene monomer (SM) route, but this route often leads to imbalances between these products amid differing rates of growth. An alternative PO production route uses isobutene, which makes a tertbutyl alcohol (TBA) co-product that can convert to methyl tertiary butyl ether (MTBE) There are also other newer PO only production methods, which are said to be more efficient. There is the cumene-hydroperoxide based propylene oxidation route, which allows for the recapture of cumene. There is the direct propylene hydro-oxidation with oxygen and hydrogen direct propylene oxidation with oxygen technology and propylene oxidation using hydrogen peroxide, which has no co-products other than water.

OUTLOOK

PO demand in Europe is expected to grow around 3% on average per year, taking into account growth estimates for its main derivatives such as 3-4% for downstream polyols
and around 2% for MPG. While there is the new Sadara PO capacity in the Middle East, which started in Q3 2017, and MOL also plans to build some new PO capacity in eastern Europe, these are expected to be for captive downstream polyols and MPG usage. It is also expected that the Sadara PO volumes are mainly intended for the Asian and Middle East markets rather than for Europe. While the Sadara capacity is unlikely to have a direct effect on PO supply in Europe, particularly as PO is not easy to transport, there may be an indirect impact on PO supply in Europe through its derivatives. LyondellBasell plans to build the world’s largest PO/tertiary butyl alcohol (TBA) plant in Texas, by mid-2021. This is being driven by rising global demand for urethanes and cleanerburning oxyfuels. One company source said that options for this new capacity are being considered, adding that this new capacity is likely to be used to supply PO and derivative customers domestically and in other regions.