COMMODITIES 2026: Oversupply expected to maintain pressure on propylene prices

This is part of the COMMODITIES 2026 series, in which our reporters bring to you key themes that will drive commodities markets in 2026.

The global propylene market is expected to face challenges through at least the first half of 2026, as weak downstream demand, low prices and high inventory levels from 2025 extend into the new year. Each region is dealing with various aspects of the same problems that are increasing the availability of propylene.

Oversupply a key challenge for Europe

Europe imported 1.46 million metric tons of polypropylene from January to September, up 9% from the same period in 2024, according to S&P Global Energy data. This trend, which reduces the need for local PP production, alongside domestic propylene consumption, is expected to continue, as long supply in Asian markets will keep pushing sellers to offload more material into overseas markets.

The loss of demand led to a drop in propylene prices and put significant pressure on European naphtha cracker margins.

Polymer-grade propylene prices fell to Eur622.50/mt on Dec. 23 from Eur781.50/mt in early July, according to Platts assessments from S&P Global Energy. Naphtha cracker margins followed, falling to minus Eur52.30/mt in December from Eur323.22/mt in July, according to analysts from S&P Global Energy CERA.

Turnarounds scheduled for the second quarter of 2025 may tighten propylene supply and increase naphtha availability in certain market segments. For instance, the inland European market is expected to see tighter fundamentals due to turnarounds, such as at BASF's Ludwigshafen cracker. At peak turnaround season, this could mean up to 1.075 million mt/year of capacity taken offline during the quarter. However, margins are not expected to widen, as demand was not expected to increase.

US stocks rise, margins tighten

In North America, weak fundamentals have caused inventories to increase. US propane and propylene inventories grew to historic highs in the first week of December, climbing to 101.8 million barrels, up 15.58% from 93.1 million barrels in the same period of 2024, according to US Energy Information Administration data.

Propane demand for propane dehydrogenation units is only expected to rise slightly over 2026 and 2027, according to CERA analysts. Furthermore, while worldwide propane demand has steadily risen since 2022 and is expected to continue until at least 2027, North America's share of that global demand is poised to drop from 21% to 18.3% over the five-year period.

US PDH business fundamentals are also expected to deteriorate at a similar pace. Variable margins averaged $254/mt through November, but are forecast to drop to $122/mt in December. In comparison, between 2020 and 2024, variable PDH margins in the US at times surpassed $1,600/mt.

Despite these conditions, some participants were still bullish on propylene production. Enterprise Products had a strong short-term outlook for its two PDH units, each with a production capacity of 1.5 million mt/year. The company said on its Oct. 30 earnings call that operating rates for both PDH units will remain over 90% in the coming months, but propylene prices may remain low.

Platts assessed polymer grade propylene at a five-year low of 23.75 cents/lb FD US Gulf Coast on Nov. 19.

"Market oversupply and lack of downstream demand are worse than ever," a propylene seller said. "I'm not sure there is a reason for prices to go up. I expect January to be weak."

PDH expansion adds to Asia headwinds

Asia faces similar challenges as the US, with Northeast Asian propylene prices retreating against a backdrop of a Chinese supply glut caused by the robust expansion of PDH units in China in recent years.

China's PDH plants' average run rate rose to a seven-month high of 71.7% in October, supported by modestly improved profitability, according to Platts calculations based on data from energy information provider JLC. However, downstream demand has not kept up, and margins have tightened.

China-based trade sources attributed the slump in propylene prices to negative downstream margins and sluggish polypropylene demand. The CFR Far East Asia PP Rafia-CFR China propylene spread stood at $75/mt Nov. 7, below the typical spread of $250/mt for integrated producers at $300-$350/mt for non-integrated producers, Platts data showed.

A South Korea-based supplier said there was no room for the Asian propylene market to recover in 2026, noting that while South Korea is rationalizing some cracker capacities, the closures will mainly affect ethylene capacities.

The supplier added that the pressure from China PDH "is too much," and said currently shut Chinese PDH plants will start operations immediately if there is a supply shortage.