In July, ongoing geopolitical tensions and risks to energy supplies bolstered cost-side support. Simultaneously, a concurrent contraction in industry supply and demand drove a period of price strength for PP. However, as the market's reaction to news headlines wanes—compounded by the dual pressures of new capacity coming online in the second half of the year and weak demand—PP market prices are expected to face downward pressure and retreat in August.
Confluence of Factors Triggers Market Rally
In early July, mutual attacks between the US and Iran reignited geopolitical tensions, causing crude oil prices to rebound and strengthening cost-side support. PP futures trended upward amidst volatility, fueling bullish sentiment among market participants. With fundamental pressures remaining manageable—and supply-side support particularly strong—PP prices surged beyond expectations, experiencing a rapid rise at one point. As of July 22, the price of "drawing-grade" PP in East China reached 9,025 RMB/tonne, up 13.17% from the end of June and 27.29% year-on-year. The price of low-melt copolymer PP reached 9,350 RMB/tonne, up 16.66% from the end of June and 30.40% year-on-year.
PP prices trended downward this week; on July 28, the price of PP raffia-grade resin in East China stood at 8,840 RMB/tonne, marking a 2.32% decline from the previous Friday. Market sentiment was volatile throughout the week: early on, a temporary de-escalation of tensions between the US and Iran caused a sharp drop in oil prices, dragging down PP futures and exerting bearish pressure on the spot market, where prices continued to fall. However, on Wednesday, reports of renewed US-Iran conflict triggered a rebound in both international oil prices and PP futures, reviving market sentiment and slowing the downward price trend.
Resurgence of Geopolitical Conflict Strengthens Cost-Side Support
Crude oil prices had shown a clear downward trend in June as earlier conflicts cooled. Although PP prices fell more slowly than crude oil due to tight supply, they still experienced a rapid decline in mid-June. However, the US-Iran conflict flared up again; in early July, Iran once again closed the strait and the US restricted Iranian oil exports. As the conflict escalated, crude oil prices trended upward amidst volatility, reigniting bullish sentiment among market participants. Brent crude oil prices climbed from $71.57 per barrel in early July to $83.30 per barrel on July 13, eventually reaching $100.69 per barrel by July 23—returning to levels last seen in late May. This surge pushed the cost of oil-based polypropylene (PP) to a peak of RMB9,442 per tonne, a 30.17% increase from early July. Meanwhile, the risk of energy supply disruptions continued to weigh on PP operating rates, while heightened market sentiment further drove up PP prices.
**Simultaneous Contraction in Supply and Demand; Stable Spot Market Fundamentals**
On the supply side, geopolitical tensions and a wave of concentrated maintenance and load reductions at domestic PP plants during the first half of the year kept the industry's overall operating rate low. Through June and July, maintenance cycles persisted and remained concentrated, keeping operating loads under pressure. Concurrently, upstream and midstream enterprises adopted cautious pre-sale and volume-controlled shipment strategies, maintaining overall inventory levels within a reasonable, controllable range, though spot supplies remained tight in certain regions. Data indicates that the domestic PP industry's operating load was 64.16% in June, down 15.38 percentage points year-on-year. Although some plants resumed production in July—driving a slight recovery in operating rates—the volume of added output was limited; as of the week ending July 24, the industry operating load stood at approximately 69%, with the overall July level unlikely to exceed 72%. Tight spot supplies provided firm support for PP market prices, lending resilience to upward trends and slowing the pace of any declines.
On the demand side, July falls within the traditional off-season; downstream enterprises saw weak follow-through on new orders, resulting in insufficient overall demand momentum. Meanwhile, high upstream raw material prices continued to squeeze downstream production margins. As of July 24, the gross profit in the key downstream BOPP sector stood at -235 RMB per tonne—a year-on-year decline of 4.70%—indicating significant pressure on industry profitability. Compounded by high summer temperatures, operating rates at downstream end-user facilities have remained low, hovering between 35% and 40%. With sluggish demand for essential procurement and a significant reduction in raw material stockpiling, overall demand weakness is evident; this has suppressed the upside potential for PP market prices and limited price volatility.
Trading Sentiment Weakens; PP Market Likely to Ease
In summary, geopolitical conflicts persisted throughout July, and the threat of a blockade in the Strait of Hormuz remained; risks regarding crude oil and energy supply disruptions continued to influence market sentiment, significantly bolstering cost-side support. On the supply-demand front, both sides contracted simultaneously; while the off-season dampened downstream purchasing, concentrated maintenance at industry facilities tightened supply, providing a price floor and driving a generally bullish trend for PP in July. Looking ahead, as the market's reaction to news flow diminishes, the upward pressure on prices from geopolitical volatility is likely to be outweighed by the downward pressure from weak demand—barring any major macroeconomic events. Furthermore, with 450,000 tonnes of new capacity expected to come online in August and previously idled units resuming operations, supply pressure will likely mount. Given the lack of substantial improvement on the demand side, prices are expected to retreat in August. (Source: Sina Finance)
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