Recently, chemical products have drawn market attention due to the logic of “cycle bottoming out and expectation reversal.” Concurrently, the North American cold snap and geopolitical conflicts have driven up raw material costs. Under the combined influence of these factors, polyolefin futures prices have risen.

Accelerated Inventory Drawdown in Upstream Markets

Recently, the price trends of upstream propylene and vinyl monomers have diverged significantly. Propylene prices have shown relative strength, while ethylene prices have declined against the backdrop of concurrent price increases in both upstream and downstream products.

For polyethylene (PE), the current industry operating rate stands at 85.35%, up 0.68 percentage points from last week. With the gradual restart of facilities like Shanghai Petrochemical and Dushanzi Petrochemical, PE capacity utilization has rebounded. The weakening ethylene prices stem partly from increased spot supply driven by new domestic capacity releases, and partly from sluggish downstream demand. Low operating rates at both domestic and international styrene plants, coupled with earlier maintenance outages at PE facilities, have resulted in a generally weak ethylene supply-demand balance. However, PE has shown the most significant profit recovery within the ethylene downstream chain, suggesting potential supply expansion expectations.

Turning to polypropylene (PP), the current industry operating rate stands at 74.78%, down 1.25 percentage points from last week. Shutdowns at facilities including Zhongjing Petrochemical's Phase II Line 1, Qinghai Salt Lake, and Dushanzi Petrochemical's Line 1 have dragged down PP capacity utilization. Propylene prices remain robust, underpinned by two key factors: First, persistently high propane costs, driven by escalating geopolitical risks and U.S. cold weather disrupting port shipping efficiency. Second, a significant narrowing of the propylene supply gap, while demand benefits from increased consumption driven by rising PP operating rates. In the short term, with propane and propylene prices remaining robust, PP's cost support remains solid, and supply disruptions are expected to persist.

Recently, inventory drawdowns in the polyolefin upstream sector have accelerated. Inventory levels have fallen from above-year-ago levels at the beginning of the year to below-year-ago levels. When measured by the lunar calendar, the year-on-year decline is even more pronounced. This week, upstream polyolefin inventories continued to decline: total PP inventory fell to 648,300 tons, down 31,900 tons week-on-week; total PE inventory dropped to 802,600 tons, down 9,800 tons week-on-week.

By product type, PE inventory drawdown slowed, primarily due to coal-based chemical producers shifting from destocking to restocking. Some traders reported accelerated shipments from coal-based chemical plants, easing earlier low-inventory pressure caused by overselling. Overall, upstream polyolefin inventory pressure remains manageable, but intermediate distribution channels face relatively higher pressure, particularly for standard products, which still hold above-average inventories year-on-year.

Downstream Sector Gradually Enters Off-Season

On the demand side, polyolefin downstream industries have progressively entered their traditional off-season. With the Spring Festival holiday approaching, end-user factories show limited restocking willingness, focusing primarily on essential purchases while speculative stockpiling sentiment remains weak.

PP downstream operating rates have declined again, with the current average operating rate at 52.08%, down 0.79 percentage points month-on-month. Among sub-sectors, only BOPP (biaxially oriented polypropylene film) and CPP (cast polypropylene film) saw slight increases in operating rates, while operating rates in other downstream segments remained largely flat or declined.

PE downstream demand remains broadly weak, with the current average operating rate at 37.76%, down 1.77 percentage points month-on-month. Except for hollow products showing relatively stable demand, operating rates across other segments continued to decline, with the packaging film sector experiencing the most significant drop.

The market exhibits a pattern of “low upstream inventory and high midstream inventory.” While the peak maintenance period for PP plants has passed and operating rates are gradually recovering, strong propane and propylene prices are squeezing corporate profit margins, suppressing capacity releases from PDH and externally procured propylene enterprises. PE plant operating rates are accelerating their rebound, and with relatively decent profits in the ethylene chain, the probability of supply returning is relatively higher. However, the short-term supply increase has yet to translate into inventory levels. Overall, the polyolefin supply-demand balance will gradually weaken. Nevertheless, driven by sustained cost pressures, polyolefin futures prices are expected to remain firm in the near term.

In summary, the current polyolefin market exhibits a structural feature of “low upstream inventory and high midstream inventory.” Supply dynamics diverge significantly between PP and PE: PP faces constraints from high propane and propylene prices, limiting the release of marginal capacity like PDH; PE, benefiting from decent industry margins, is seeing accelerated recovery in plant operating rates. Although gradually rising supply will exert downward pressure on polyolefin prices in the medium term, strong short-term cost support suggests prices are likely to remain firm.

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