Industry Definitions and Industry Chain Diagram
Epichlorohydrin (ECH), also known as Glycidyl chloride , is a colorless, ethereal liquid that reacts with water, ammonia, alcohols, and carbon dioxide to form corresponding compounds or polymers. Epichlorohydrin is a core intermediate in the petrochemical industry and, along with polypropylene and acrylonitrile(AN), constitutes the three main derivatives of the propylene industry chain. As a key product in my country’s chemical industry, the development of its industry chain has attracted considerable attention. It is not only a crucial extension of the downstream fine chemical industry within the propylene industry chain, but also a key factor in increasing the refinement rate of private enterprises. Furthermore, the integration of propylene oxide’s downstream products with the new energy industry chain also indicates its future development potential.
The current propylene oxide industry chain has a clear structure, primarily consisting of upstream raw material supply, midstream propylene oxide production, and downstream applications. Specifically, the main raw material for propylene oxide is propylene. The price and supply stability of propylene directly affect the production cost and market price of propylene oxide. The midstream is propylene oxide production, while the downstream is the application sector, including polyether polyols, propylene glycol, dimethyl carbonate, and other sub-sectors. Changes in demand in these sectors directly influence the market demand and price trends for propylene oxide.
The supply market is gradually easing, and the market faces oversupply.
Rapid growth in production capacity and output has led to a gradual easing of the supply market
Since the domestic propylene oxide capacity expansion wave began in 2021, propylene oxide plants have been put into operation at numerous companies, leading to a rapid increase in my country’s propylene oxide production capacity and a gradually easing supply market. Data shows that in 2023, my country’s propylene oxide production capacity will reach 6.12 million tons, a year-on-year increase of 24.85%, and production will reach 4.31 million tons, a year-on-year increase of 13.31%.
It is worth noting that although my country’s propylene oxide production capacity and output have continued to expand in recent years, the current regional distribution is uneven, with most of the production still concentrated in coastal areas. Shandong remains the main production capacity concentration. In 2024, Shandong’s total propylene oxide production capacity will reach 3.29 million tons, accounting for 44.46% of China’s total capacity, a 2 percentage point year-on-year increase. Future new plant commissioning will continue to be primarily concentrated in coastal areas, with a slow expansion inland. This is primarily due to the high gross profit margins inherent in propylene oxide, which have attracted numerous investors. Furthermore, this is driven by growing demand from downstream industries. The increased share of production capacity in Shandong and East China is primarily due to the commissioning of new plants such as Jiangsu Ruiheng, Yantai Wanhua Phase III, Lihuayi, and Shenghong Petrochemical.
The market faces oversupply, and the overall market is experiencing a volatile downward trend.
In contrast to the rapid expansion of market supply, my country’s propylene oxide demand has underperformed in recent years, leading to an oversupply situation in the market and a volatile downward trend, with prices falling to around 10,000 yuan. For example, in 2023, the average annual profit for propylene oxide produced using the chlorohydrin process was approximately 786 yuan per ton, a 2% year-on-year decrease. Meanwhile, most HPPO processes are operating at a loss.
Market analysis suggests two main factors contribute to my country’s propylene oxide oversupply. First, with the rapid expansion of the industry, more and more companies are entering the propylene oxide market, leading to intensified competition. To compete for market share, companies are forced to lower prices and increase production, resulting in a continuous decline in operating rates. Data shows that my country’s propylene oxide utilization rate will be approximately 70% in 2023, a 12 percentage point decrease from 2021, a historic low. This change in data clearly demonstrates the intensity of market competition and the intensification of the supply-demand imbalance. Second, propylene oxide’s downstream applications are relatively limited, primarily concentrated in polyether polyols, dimethyl carbonate(DMC), propylene glycol(PG), and alcohol ethers. Polyether polyols are the primary downstream application of propylene oxide, accounting for more than 80% of total propylene oxide consumption. However, consumption growth in this sector is consistent with China’s economic growth, with industry scale growth below 6%, significantly slower than the growth rate of propylene oxide supply. This means that while market demand is growing, the rate of increase is far slower than the supply growth, leading to an intensified supply-demand imbalance.
Looking ahead, domestic propylene oxide production capacity is projected to reach 10.67 million tons/year by 2025, with capacity utilization expected to fall to 52%, leading to a relatively loose market supply and demand fundamentals. If some chlorohydrin-based plants are eliminated due to failure to meet policy requirements, excluding their 1.59 million tons of annual production capacity, domestic annual production capacity will remain at around 9.08 million tons.
The Chlorohydrin-Based Process Faces Risk of Obsolescence, with the HPPO-Based Process Gradually Dominating New Capacity Construction
Currently, five major production processes exist in my country’s propylene oxide industry: the chlorohydrin-based process, HPPO-based process, PO/SM-based process, PO/MTBE-based process, and CHP-based process. Considering environmental protection, cost, and yield, the HPPO-based process is considered the primary development direction for propylene oxide production in the future due to its environmental friendliness, short process flow, and high yield. However, the high technology transfer and catalyst costs present challenges for companies.
The Chlorohydrin-Based Process Faces Risk of Obsolescence
The chlorohydrin-based process is a traditional propylene oxide production process. While the chlorohydrin process boasts advantages such as mature technology, flexible operation, and low construction investment, it also suffers from significant drawbacks (such as high chlorine consumption, severe equipment corrosion, and large wastewater and lime slag emissions). These drawbacks have put it on the brink of elimination amidst increasing environmental pressures. For example, the chlorohydrin process consumes 5 tons of chlorine(CI2), generates at least 40 tons of chlorine-containing wastewater, and produces over 2 tons of calcium chloride waste residue for every ton of propylene oxide produced. While calcium chloride can be eliminated by improving saponification feedstock, this still generates significant wastewater and increases production costs. Therefore, with the strengthening of national environmental governance efforts and the commissioning of new process equipment, the chlorohydrin process’s niche is shrinking. Data shows that the share of chlorohydrin-based propylene oxide production in my country decreased from 43.4% to 21.22% between 2021 and 2024.
The chlorohydrin process is currently facing the risk of being phased out. In 2011, my country included the chlorohydrin-based propylene oxide process in the restricted category of the “Guiding Catalogue for Industrial Structure Adjustment (2011).” Since then, due to the immaturity of domestic clean propylene oxide process technology, chlorohydrin-based propylene oxide has been classified as “restricted” rather than “eliminated”, and new production capacity has not been approved. However, with the major breakthroughs made by companies such as Sinopec, Wanhua Chemical, Hongbaoli, and Yida Chemical in propylene oxide clean production technology and project industrialization, the expectation of chlorohydrin-based propylene oxide exiting the market has become increasingly strong. Subsequently, in December 2023, the National Development and Reform Commission announced the “Guiding Catalogue for Industrial Structure Adjustment (2024 Edition)”, which clearly listed chlorohydrin-based propylene oxide and chlorohydrin-based epichlorohydrin production units as restricted, and planned to eliminate chlorohydrin-based propylene oxide units that do not meet specific conditions (fresh water consumption per ton of product does not exceed 15 tons and waste residue generation does not exceed 100 kilograms) after December 31, 2025. This means that the survival time of such units is less than two years. However, many chlorohydrin-based units currently in production have not yet met the standards for water consumption and waste residue generation. Companies are currently evaluating the costs and challenges of technological transformation. Despite this, due to the maturity and safety of the chlorohydrin process, as well as the stability of its product quality, many companies are still interested in implementing technological transformation to meet policy requirements and continue operating chlorohydrin plants. However, specific progress remains to be seen.
HPPO Process Gradually Dominates New Capacity
Compared to the chlorohydrin and co-oxidation processes, the HPPO process is simpler and free of by-product constraints. Its end products are water and propylene oxide, with only a small amount of propylene glycol as a by-product. 5 It is an environmentally friendly, green process, encouraged by national policies, and eligible for export tax rebates. According to the “Comprehensive Catalogue for Environmental Protection (2021 Edition)” issued by the Ministry of Ecology and Environment, propylene oxide is listed in the “Double High” product catalog, with the exception of the direct oxidation process. The “Suggestions for the 12th Five-Year Development Plan for the Polyurethane Industry” also clearly proposes to phase out the environmentally polluting chlorohydrin process for propylene oxide and primarily develop the HPPO process. These policies will undoubtedly support the future development of the HPPO process in the propylene oxide synthesis market, and it is expected to become the mainstream process in the future.
Driven by environmental protection policies, the HPPO process continues to increase its share in propylene oxide production. With the gradual withdrawal of the chlorohydrin process, further market potential is expected to be unlocked. Data shows that from 2021 to 2024, the HPPO process’s share of propylene oxide production in my country increased from 12.8% to 31.76%. By 2025, the HPPO process is projected to reach 33.4% of the total propylene oxide production process, second only to PO/SM.
