Polypropylene: Rising costs & reduced supply support a wide-range market rally. How will the market develop moving forward?

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PP Analyst at Zhuochuang Information, Xiang Xinyan

[Introduction]: Since March, rising costs combined with reduced supply have driven broad increases in the PP market. Looking ahead, although downstream demand has slowed, cost support is still expected to remain strong, and tighter supply provides solid market backing. Additionally, export markets are performing well, so it is expected that the market may continue to see small gains before the end of March.

Rising costs and shrinking supply boost March market-wide increases

Since March, the market trend has been dominated by sharp fluctuations in costs caused by Middle East geopolitical conflicts. Coupled with limited supply of crude oil, propane, and other raw materials, PP costs have remained high. Production companies have increased shutdowns and reduced capacity, significantly tightening supply expectations and further boosting prices. However, since mid to late March, some downstream companies have slowed new orders, mainly consuming existing raw material inventories. Currently, high raw material prices limit procurement efforts and market transaction performance, constraining upward movement. According to Zhuochuang Information, as of March 20, East China filament prices reached 8,690 yuan/ton, up 32.67% from the end of February, with a clear shift upward.

Some companies plan to reduce capacity or shut down, supporting market performance through supply expectations

Since March, the spring maintenance season combined with tightening raw material supplies has led to passive capacity reductions and shutdowns by production companies, strengthening supply-side expectations. Specifically, recent increases in crude oil, methanol, propane, and other PP raw materials have been significant. According to Zhuochuang data, the average cost of oil-based PP is 9,737.92 yuan/ton, up 9.97% month-on-month; PDH-based PP averages 10,763.72 yuan/ton, up 7.48%. Due to concerns over insufficient raw material supply, petrochemical companies have increased shutdowns and capacity reductions. As of March 20, the PP shutdown rate reached 21%. Currently, Fujian United’s small line, 2PP, a southern enterprise, Zhejiang Petrochemical’s three PP lines, and Tianjin Binhai Chemical are all shut down. Companies like Guangxi Petrochemical, Zhenhai Refining & Chemical, and Dongming Petrochemical are experiencing 20%-30% capacity reductions, with potential for further reductions. Reduced resource supply continues to support price increases. Overall, domestic supply contraction expectations support short-term market prices.

Reduced domestic demand limits market transactions; external demand provides support

In March, downstream factories gradually resumed work and production in early month, increasing operating rates. Driven by macroeconomic sentiment, some restocking occurred amid fears of price hikes. Early March saw a noticeable surge in market activity. However, since mid to late March, as raw material prices continued to rise and downstream product prices faced limited transmission, procurement slowed due to increased costs and squeezed profits. Some factories even sold raw materials or paused operations, reducing demand and limiting market transactions. On the export side, recent export profits have improved, and export markets are performing well, providing external demand support.

Overall, since March, intensified geopolitical tensions and rising costs with shrinking supply have driven broad increases in the PP market, with a clear upward shift in price center. Although downstream demand has slowed, limiting market transactions, strong cost support and tight supply continue to underpin the market. Additionally, favorable export conditions suggest that the market may continue to see small gains before the end of March.