SunSirs: Geopolitical Risk Premium Returns; China PP Prices Dip Then Rise in August

According to data from SunSirs, the domestic polypropylene (PP) market rebounded in August after an initial decline, with prices rising across various grades. As of August 31, the benchmark quote for PP (drawing grade) stood at 9,246.67 RMB/ton, an increase of 3.05% from the beginning of the month.

Regarding raw materials: International crude oil prices continued to fall early in the month but eventually stabilized and rose. While there were initial hopes for active peace talks and a relaxation of sanctions between the US and Iran, the situation later stalled, raising industry concerns about the prospects of an agreement. With no signs of a full reopening of the Strait of Hormuz, the geopolitical risk premium returned, driving up long-term cost projections for PP. Meanwhile, profit margins for some downstream propylene products improved, leading to the restart of several downstream facilities. Propylene prices were bolstered by these dual positive factors; despite a slight pullback at month-end, the strong earlier performance kept prices at a high level. Coupled with the strengthening of thermal coal prices at the end of the month, raw material costs provided solid support for PP prices overall.

Regarding supply: August saw a mix of maintenance shutdowns and facility restarts among domestic PP producers, resulting in a generally stable operating rate with only minor fluctuations. Facilities such as Shell’s second line and Yulong Petrochemical entered maintenance early in the month, while Zhejiang Petrochemical and Juzhengyuan restarted operations in the second half. Throughout the month, the industry's overall operating load hovered around 69%, with average weekly production near 720,000 tons. Current inventory levels are close to 530,000 tons, and expectations remain for increased supply in the future. However, the overall pace of supply recovery has been slower than anticipated, meaning the supply side has provided only moderate support for spot prices.

Regarding demand: Polypropylene consumption is gradually entering the traditional peak season, though demand levels remained sluggish early in the month. Downstream markets showed limited acceptance of high-priced supplies, resulting in a cautious trading atmosphere. Compounded by counter-seasonal cost trends, end-user enterprises showed little enthusiasm for building inventory, preferring instead to purchase small, sporadic lots on an as-needed basis. Operating rates among small and medium-sized enterprises saw limited improvement, with downstream load stabilizing at around 45%. Buyers remained largely in a wait-and-see mode, limiting market trading activity; overall, demand provided only moderate support for PP prices. Market Outlook: Domestic PP prices saw a rebound in August following an initial decline. Regarding fundamentals, cost-side support remains strong, though this also subjects PP to counter-seasonal cost pressures. On the demand side, orders remain limited, with no signs of significant volume growth. Analysts at SunSirs believe that while the PP market is currently buoyed by cost factors, the supply-demand dynamic remains characterized by strong supply and weak demand. This tug-of-war between bullish and bearish forces may result in insufficient upward momentum, likely causing the market to remain in a consolidation phase.

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