In the early hours of June 15, Iran's Supreme National Security Council officially confirmed the conclusion of a truce memorandum of understanding (MOU) between Iran and the US. Both sides agreed to an immediate and permanent cessation of military operations across all fronts, including Lebanon. As the geopolitical risk premium dissipated, prices for rubber and plastic products fell across the board. Looking ahead, the market faces significant downward pressure in the second half of the year due to recovering supplies and the anticipated startup of multiple new production facilities.
I. Geopolitical Risk Premium Fades; Rubber and Plastic Prices Drop Across the Board
In the early hours of June 15, Iran's Supreme National Security Council officially confirmed the conclusion of a truce MOU between Iran and the US. Both sides agreed to an immediate and permanent cessation of military operations across all fronts, including Lebanon. According to the MOU, the Strait of Hormuz is set to reopen within 30 days; the US will lift its maritime blockade and suspend sanctions on the sale of Iranian oil and petrochemical products.
Triggered by this news, international oil prices plummeted over two days. By the close of trading on June 15, WTI crude oil had fallen to $80.75 per barrel (a drop of $6.96), while Brent crude dropped to $83.17 per barrel (a drop of $7.21). However, the domestic futures market showed mixed performance on June 15; prices began to fall across the board on June 16, with the spot market following suit. The Linear (LLDPE) index fell by RMB115 compared to the previous Friday, the PP index dropped by 74 RMB/ton, and ABS fell by 40 RMB/ton. Overall market activity was characterized largely by a "wait-and-see" approach.
II. Supply and Demand Become Key Focus as Costs Gradually Normalize
(1) Weak Overall Demand Weighs on Second-Half Market
Regardless of oil price fluctuations in the first half of the year, end-market demand remained consistently weak. Overall, the geopolitical conflict merely altered cost allocation and profit structures without generating new demand. There is significant uncertainty regarding whether downstream demand will effectively improve in the second half of the year, and its ability to support the market is expected to be limited.
(2) Overall supply saw a significant reduction in output; attention must be paid to the actual commissioning of new units scheduled for the second half of the year.
In the first half of the year, geopolitical conflicts created a risk of raw material supply disruptions. Major enterprises—including Sinopec and large private refining-chemical complexes—took the lead in reducing operating loads. Adhering to the priority of maximizing fuel output to ensure public welfare, operating rates for rubber and plastic products gradually declined, leading to a marked contraction in supply. However, due to more severe impacts overseas and resulting resource shortages, China’s export volumes surged, causing a drastic shift in the market supply structure; this was a primary factor supporting prices during the first half of the year. Looking ahead, as supply recovers and multiple new production units are expected to come online in the second half, rubber and plastic products are likely to face significant downward pressure.
III. Market Trend Forecast for the Second Half of the Year
1. Cost Side: Geopolitical premiums will be fully erased, and the central oil price level will shift downward.
With the Strait of Hormuz expected to reopen within 30 days, a portion of crude oil supply will gradually resume in the short term. However, the global crude oil landscape has been restructured, and full recovery of infrastructure will take time—estimates suggest a return to pre-war levels may not occur until 2027. Nevertheless, increased global exports from the US and Russia have resulted in a net rise in supply, pushing oil prices back toward pre-war levels. Consequently, cost support for downstream products will weaken significantly, though the overall profit margins of petrochemical enterprises are expected to recover effectively.
2. Export dividends fade; structural risks emerge.
The export window was largely open during March and April but began to narrow in May and is currently effectively closed. As global supply rises in the second half of the year, export volumes are expected to retreat from their highs. Regarding specific products: domestic demand for PBAT accounts for only 30% of production; with exports hindered, market attention must shift to demand growth following the implementation of stricter environmental regulations on August 15. Meanwhile, products such as PP, PE, and PS face competitive pressure as overseas supplies recover.
3. Supply-side contraction sets a price floor, though operating rates will gradually recover
Current operating rates—55% for ABS, 60–63% for PP, and 45% for PA66—are relatively low. While this provided significant price support in the first half of the year—with PP performing particularly well, seeing its price baseline rise steadily and remaining above PE for an extended period—supply will face considerable pressure as production gradually resumes and new capacity comes online in the second half of the year.
4. Demand remains the primary constraint; seasonal fluctuations are limited
The government remains confident in stabilizing the real estate sector, and transaction data across various regions has improved; however, the real estate development cycle has reached a stage where speculative housing investment is a thing of the past. Overall, the area of new real estate construction is shrinking, providing insufficient impetus for demand in rubber and plastic products. While the new energy vehicle (NEV) sector currently shows strong momentum, the initial explosive growth phase has passed; future growth depends on the next wave of vehicle replacements, and many consumers remain in a "wait-and-see" mode regarding battery technology pathways. Although products such as PP, PA, and PC are used as raw materials for modified plastics in NEVs, future growth drivers appear inadequate. Traditional demand is contracting, yet it remains the bedrock of market consumption. Moving forward, attention should be paid to e-commerce shopping festivals and periods of essential procurement around the fourth quarter to see if demand can effectively support the market.
5. Profit margins will shift from upstream to downstream sectors
In the first half of the year, selling raw materials—such as ethylene, propylene, butadiene, and styrene—was more profitable than selling finished products. However, as crude oil supplies gradually recover, these margins will retreat, with overall profitability shifting toward downstream products. Consequently, the strength of downstream demand will directly determine the extent of profit margin recovery.
Prices for rubber and plastic products in the second half of the year are expected to remain weak and hover at low levels.
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