Explaining the Anomaly: Why Are Polyether Polyols Cheaper Than PO?
June 11, 2026 4 min read
Recently, the price inversion between propylene oxide (PO) and flexible slabstock polyols has drawn market attention.
Based on mainstream prices in Shandong, this round of inversion was not a one-day fluctuation. Since mid-May, the spread between flexible slabstock polyols and PO has gradually turned negative. On May 14, flexible slabstock polyols were CNY 250/tonne lower than PO. By May 29, the inversion widened to CNY 650/tonne, marking one of the deepest levels so far this year. Entering June, the inversion narrowed somewhat but had not fully repaired. On June 3, mainstream flexible slabstock polyols prices in Shandong stood at CNY 8,550/tonne, while PO was at CNY 8,900/tonne, leaving a negative spread of CNY 350/tonne.
Period
Flexible Slabstock Polyols
PO
Spread
Jan. avg.
8,296
8,108
188
Mar. avg.
11,311
10,510
801
Apr. avg.
12,443
11,841
601
May avg.
9,484
9,628
-143
Early Jun.
8,583
8,850
-267
Unit: CNY/tonne; spread = flexible slabstock polyols minus PO.
The charts show that flexible slabstock polyols maintained a positive spread over PO from January to April, with the spread once widening in March and April. However, after entering May, the spread quickly moved into negative territory. This suggests that the current inversion is not simply a pricing mismatch, but a reflection of diverging pricing power between upstream and downstream markets.
PO: More Concentrated Supply, Stronger Price Resilience
Compared with polyether polyols, the PO market has fewer producers and a higher degree of supply concentration. Producers also differ in process routes and cost structures. When margins are squeezed or losses deepen, some higher-cost producers tend to reduce operating rates, shut down units, or delay restarts to curb supply. Once supply tightens, PO prices can find support more easily.
Although PO prices fell sharply earlier, they later rebounded continuously. This indicates that PO pricing is not driven solely by weak demand, but is also affected by operating rates and producers’ willingness to defend prices.
Polyols: More Fragmented Capacity, Prices More Demand-Led
On the polyols side, new capacity has continued to come online in recent years, while market participants remain relatively fragmented. Different producers face different inventory, order, and sales pressures. When demand weakens, producers are more likely to offer concessions to move cargoes.
During June 1-5, domestic flexible slabstock polyols prices continued to bottom out. Bulk ex-works offers in North China were roughly CNY 8,300-8,700/tonne, down CNY 400-600/tonne from the previous week. Downstream sponge and home furnishing sectors were entering the off-season, purchases were mainly small-volume just-in-time orders, large orders were limited, and the sustainability of export demand still required attention. Against this backdrop, polyols prices lacked upward momentum.
Cost Structure: Pressure Is More Obvious for PO-Buying Producers
PO accounts for a high share of polyols production costs, usually around 80%. In theory, when PO prices remain high, polyols prices should move up accordingly; otherwise, margins will be compressed quickly.
However, polyols are not priced purely on a cost-plus basis. Final transaction prices are also determined by downstream acceptance, peer competition, and inventory pressure. Producers with integrated PO supply have a cost advantage and can tolerate lower polyols quotations, while non-integrated producers that buy PO externally face more rigid feedstock costs and greater pressure in a low-price competition environment.
Weaker Feedstocks Have Not Resolved the Inversion
It is worth noting that weaker propylene and liquid chlorine prices have not effectively repaired the inversion. In early June, Shandong propylene moved weakly, while liquid chlorine prices also softened. The cost side did not provide strong upward support for PO.
Even so, PO prices rebounded after earlier declines. This suggests that the current pricing driver is more about supply adjustment than pure cost movement. In other words, the inversion is not caused by PO costs being passively pushed higher; rather, PO is more sensitive to losses, while polyols simply lack the ability to rise.
Outlook: Repair Depends on Which Side Gives Way First
Looking ahead, there are three possible paths for the spread to repair. First, PO supply remains ample and prices continue to concede. Second, downstream replenishment supports a rebound in polyols prices. Third, polyols producers continue to absorb the inversion through margin compression.
In the short term, if demand does not show a clear improvement, the third scenario may remain the main path.
Therefore, this round of PO-polyols inversion is not merely a “cost inversion.” It is a redistribution of margins along the value chain during a weak demand cycle. The upstream side is defending prices through higher concentration and supply adjustment, while the downstream side is giving up margins amid loose capacity and insufficient orders. For polyols producers, the real pressure is not only that PO prices remain high, but that when PO still has support, polyols have already lost their ability to pass through costs.
