Supply Tightens, Polypropylene Prices Expected to Rise After May’s Consolidation

June 1st, according to the news,

According to Spotcom data, in the first half of May, the PP market in China experienced a decline followed by recovery, and then rose in the second half. The price change rate for various grades of products was relatively narrow. As of May 31, the benchmark price for PP fiber was 9,723.33 CNY/ton, representing a 1.81% increase from the beginning of the month.

Price Trend

Regarding raw materials:

During May, both the U.S. and Iran in the Middle East released a flurry of high-level signals, generally characterized as relatively positive. In the long term, the crude oil supply gap is expected to gradually narrow; however, it will still take time for shipping through the Strait of Hormuz to fully resume. Market sentiment remains divided, with geopolitical premiums and fundamental factors locked in a tug-of-war within the trading range. In the latter half of the month, oil prices plunged rapidly, and PP’s distant-term cost benchmarks softened. On the propylene side, market demand remained steady, though some enterprises resumed operations during the month. Anticipated increases in supply put downward pressure on price hikes, triggering a pullback from higher levels. Overall, PP raw material prices showed mixed trends, and at month-end, support for PP costs weakened.

Supply side:

During May, numerous Chinese PP companies experienced capacity shutdowns and restarts, with the overall operating rate at a historically low level. The list of restarts includes China-Anhui United, Guangdong Petrochemical's second and third lines, and Dagang Petrochemical. Shutdowns included Hongji Petrochemical, Sino-Saudi Tianjin, and Yangzi Petrochemical. As of the time of writing, the overall industry load in China is less than 50%, with weekly production falling below 670,000 tons. Current inventory levels are below 700,000 tons, indicating a relatively tight supply of goods. Overall, the supply side provides strong support for spot prices.

Demand side:

Affected by the speculative price increase at the end of the first quarter, PP prices remained relatively high during May. The downstream market in the industry continued to show resistance to high prices, and the overall trading atmosphere was cautious. Currently, buyers are purchasing according to their needs, with limited inventory building, and there are mostly small, sporadic orders taken as needed. At the same time, due to high cost pressures, the operating rates of small and micro enterprises at the terminal have seen limited improvement, while large and medium-sized enterprises continue to purchase steadily. Overall, the demand side is taking a wait-and-see attitude, providing only moderate support for PP.

Future Market Forecast

In May, the PP market prices in China fluctuated in the first half of the month and increased in the second half. From a fundamental perspective, maintenance in May remained concentrated, with industry load reaching its lowest point, and port imports remaining low, leading to tighter spot resources in the market. However, the cost side weakened, coupled with weak demand and expectations of capacity returning in June. PP analysts believe that the current PP market is characterized by weak supply and demand, and the upward momentum is hindered, which may prevent further price increases.

Technical Analysis

Analysts believe that according to the SpotCommodity display, on May 1st, the 10-day moving average of PP crossed above the 20-day moving average, but the difference between them fluctuated throughout the month. On the other hand, the auxiliary indicators show that the PP price is at a lower-middle position in the 10-day 5-tier range and at a higher-middle position in the far-month range, while also being in an overbought alert position for the past year. It is judged that there is some resistance to the short-term spot price increase, and it is recommended to closely monitor the international crude oil market and the Middle East maritime transportation situation for future market trends.