2025 is a critical turning point for the Chinese propylene market. After years of rapid expansion, the industry's supply-demand relationship underwent historic reversal, officially shifting from a "tight balance" to a overall surplus phase. Under the dual pressure of continued capacity expansion and weak demand growth, the average price level fell significantly, posing a serious challenge to profitability across the entire industry.

2025 Key Summary

1. Supply-demand imbalance became the dominant theme:

Although the annual production growth rate slowed slightly, the absolute increase in capacity was enormous, with total capacity expected to climb to 77.58 million tons. Meanwhile, downstream demand, particularly for polypropylene (PP), the main consumer, was weak due to the impact of the macroeconomic environment, leading to a widening gap between supply and demand. Taking the Shandong market at the end of the year as an example, the mainstream transaction price fell to around 6,000 RMB/ton, a significant decrease from the high levels at the beginning of the year.

2. Structural Collapse of Industry Profitability: 

Under the dual pressure of oversupply and high costs, the industry has fallen into widespread losses. Except for integrated facilities which can still maintain a small profit, the profitability of independent propylene production plants and downstream industries such as propylene oxide and octanol has shrunk significantly. In particular, PP powder production, due to the narrow price difference between it and its raw material propylene, has been on the verge of losses for a long time, resulting in persistently low operating rates.  There have even been instances of integrated facilities selling propylene raw materials externally, further exacerbating market pressure.

3. Profound adjustments in market structure:

Industry concentration is accelerating, with leading companies strengthening their market dominance through economies of scale and vertical integration. The number of companies with an annual production capacity exceeding one million tons has reached 15, and the CR10 (market share of the top ten companies) has risen to 25.69%. The market structure is evolving from "fragmented competition" to "dominance by giants," and small and medium-sized enterprises face immense survival pressure due to cost and technological disadvantages. The stage is set for significant industry transformation.

Based on market data and industry evolution trends at the end of 2025, the core themes for the propylene industry in 2026 will revolve around "deep elimination of excess capacity" and "a brutal test of the cost curve." The following is a quantitative analysis and scenario projection based on key data.

Key data: Based on market conditions at the end of 2025

1. Price and Cost Benchmark: By the end of 2025, the mainstream transaction price in the Shandong market had fallen to 6,000 RMB/ton, a price point that has breached the cash cost of most non-integrated facilities. Downstream PP powder production has been operating at a long-term loss (with a price difference of only 100-200 RMB/ton), resulting in a long-term operating rate below 10%, creating a strong negative feedback loop.

2. Supply-side rigidity data:

Production capacity inertia: In 2026, an estimated 6-8 million tons of new production capacity are still expected to be released nationwide. Even with a slowdown in growth, the absolute increase remains substantial.

Regional pressure: Taking Shandong as an example, the recent capacity expansion of facilities such as BinHua New Materials (PDH) and Lianhong New Materials (MTO) has increased the local daily output from 32,600 tons to 33,200 tons, and it may further rise to 33,700 tons. This "micro" increase in local supply pressure is a microcosm of the nationwide overcapacity.

3. Weak demand data: Excluding PP, the profits of major downstream products such as propylene oxide and octanol showed significant year-on-year declines of -339.02% and -20.6% respectively by the end of 2025, indicating that the downstream market's capacity to absorb these products is nearing its limit.

Quantitative Trend Projection for 2026: Three Key Dimensions

1. Price Range Prediction: Cost-based pricing, bottoming out and fluctuating.

Market prices will be determined by the survivor with the highest marginal cost. Based on current data and cost structures:

Price ceiling (strong resistance level): 6,200-6,300 RMB/ton. This level corresponds to the full cost line of some PDH plants and integrated facilities. Once the price approaches this level, profit-driven factors will trigger a rapid increase in supply, thus suppressing prices.

The core price fluctuation range is 5,800-6,100 RMB/ton. This range will cover most of the trading period in 2026. Prices below 5,900 RMB/ton will trigger large-scale production cuts by high-cost facilities (especially MTO plants that purchase some of their methanol).

Key cost bottom line: 5,500-5,700 RMB/ton. This range corresponds to the cash cost line of the most cost-effective coal-to-olefins (CTO) and large-scale integrated facilities in China, and is expected to be the ultimate strong support for prices. A drop below this line would trigger large-scale production cuts across the industry, but this is considered unlikely.

2.  Analysis of the capacity reduction process

Industry capacity utilization will continue to face pressure. Based on the current industry operating rate of approximately 65%, the following scenario is projected:

If prices remain below 5,900 RMB/ton for 6-8 weeks, it is expected that approximately 15-20% of high-cost marginal capacity (including some older refining and propylene units and independent MTO plants) will experience cash flow depletion, leading to actual shutdowns or permanent closures.

Based on a total production capacity of over 77.58 million tons, the scale of capacity reduction in the first phase of passive consolidation may be between 5 and 8 million tons. This will be a necessary condition for the market to achieve rebalancing.

3. Industry profitability and structural differentiation

The divergence in profitability will further intensify, creating a situation of stark contrast between success and failure:

Enterprise Type Cost Characteristics (Estimate) 2026 Profit Outlook Key Survival Actions: Leading integrated enterprises have low cash costs (approximately 5,500-5,700 RMB/ton), and strong supply chain resilience. Profitability ranges from marginal profit to break-even. They can navigate economic cycles by adjusting profits from downstream products. Counter-cyclical expansion and integration: Utilizing the downturn to carry out technological upgrades and low-cost mergers and acquisitions.

Independent PDH (propane dehydrogenation) companies are highly susceptible to fluctuations in imported propane prices, with cash costs ranging from approximately 5,800 to 6,000 RMB per ton. They experience periodic losses. Profitability depends on their ability to manage the propane/propylene price spread. Optimal hedging and logistics optimization are crucial: locking in raw material price spreads and controlling per-ton costs.

Independent MTO (methanol-to-olefins) plants and older facilities have high cash costs (generally exceeding 6,000 RMB/ton), lacking any cost advantage. They are experiencing significant losses and negative cash flow. Production cuts are necessary for survival, or permanent closure is inevitable: some facilities will switch to an intermittent operation mode until they are eventually shut down.

Key Variables and Scenario Analysis

1. International oil prices have risen sharply to above $90 per barrel. This will strongly push up the costs of naphtha and its derivatives from the cost side, providing stronger-than-expected support for propylene prices. The core price range may shift upwards to 6,000-6,400 RMB/ton, slowing down the process of capacity reduction.

2. Supply and demand gradually rebalance. Prices will fluctuate within the 5,800-6,100 RMB/ton range throughout the year, high-cost production capacity will slowly exit the market, and the industry's operating rate may slightly recover to 68-70% by the end of the year. This is the most likely scenario.

3. Macroeconomic demand is weaker than expected, and new production capacity is being added rapidly. Prices may temporarily fall to the cost floor of 5,500-5,700 RMB/ton, triggering a sharp and rapid capacity reduction. This will intensify the industry's difficulties but shorten the adjustment period.

Conclusions

In 2026, the propylene industry will transition from the first stage of "price decline" to the second stage of "capacity rationalization." The market will spend the entire year answering a core question: at a price level below 5,900 RMB/ton, how much production capacity will be unable to survive?

For participants, this is no longer a story of pursuing growth, but a severe test of survival and efficiency. Investment and operational decisions must be based on meticulous cost calculations and keen observation of signals of capacity exit. The industry's eventual recovery will begin with the continuous emergence of news about the cessation of outdated production capacity, and this "clearing out" will become the most noteworthy theme in the market in 2026.

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