China’s local homo-PP market slightly firms up, can it be sustained post-holiday?

In China, many local PP players have left their desks to prepare for the Spring Festival, which is just a week away, leading to muted trading atmosphere. Demand has weakened further, with a distributor commenting, “Downstream demand continues to shrink, making it difficult to boost market activities.” However, cost pressures and reduced domestic inventories, along with prior increases in Dalian futures prices, have lent support to local suppliers in the pre-holiday week.

Sellers marginally raised their domestic homo-PP raffia and inj. offers by CNY50-100/ton ($7-14/ton) this week. In the meantime, the post-holiday market may face bearish factors, particularly a potential imbalance in supply-demand fundamentals, leaving the sustainability of these recent increases uncertain.

Costs and futures provide partial support

Dalian futures experienced seven consecutive days of higher settlements before the recent reversal, boosting sellers’ confidence. A trader reported higher offers for local buyers, pointing to increased futures and costs. He noted, “Spot prices slightly move uphill in light of high futures and upstream costs.” Meanwhile, another trader also pointed to robust cost support, saying, “The strength in oil prices partially provides cost support, which temporarily alleviates downward pressure on the markets.”

According to market sources, active buying interest and supply constraints due to turnarounds and reduced run rates at PDH plants across Northeast Asia propelled a firming trend in propylene feedstock, not to mention the previous weekly gains in crude oil futures. ChemOrbis Price Wizard shows spot propylene prices have remained on a stable-to-higher trend kicking off in the beginning of December 2024 and hovered around their more than four-month high of $870/ton CFR China as of January 20.

Domestic inventories sharply drop

According to market sources, the two major domestic producers’ combined polyolefin inventories moved below the 500,000-ton threshold after significantly reducing by 85,000 tons, or more than 15%, within the past week. The stock level was reported at 475,000 tons as of January 22. The ongoing reduction in domestic availability has managed to wipe away supply concerns inside the country during the pre-holiday weeks.

Will uptrend sustain itself post-holiday?

Despite recent gains, the market outlook post-Lunar New Year remains uncertain. Players foresee potential headwinds when the markets reopen, with a low chance for upswings unless there is a strong resurgence in post-holiday demand.

Weakened cost support: Falling crude oil futures could erode cost support. Brent crude, which reached a six-month high of $82.03/bbl in mid-January, has declined over the past four sessions to fall below $80/bbl. This downtrend has spilled over into Dalian futures, which have also slid since January 20. Sustained weakness in crude oil and Dalian futures could weigh on propylene monomer prices.

Resurgence of supply pressure: Post-holiday inventory accumulation, plant restarts, and new capacity additions are expected to amplify supply pressure. According to ChemOrbis Production News Pro, only 337,000 tons of PP capacity will remain offline in February. Meanwhile, three PP plants, with a combined capacity of 1.4 million tons/year, are set to come online by the end of January. Fewer maintenance turnarounds and massive capacity expansions will likely exacerbate supply concerns, dampening market sentiment.

Muted demand recovery: A strong rebound in demand is considered unlikely in the short term, particularly amid potential trade tensions between the US and China. US President Donald Trump recently indicated plans to impose an additional 10% tariff on Chinese imports as early as February 1. If implemented, this could pressure China’s downstream PP factories producing export-oriented goods—such as packaging, consumer products, and automotive components—prompting them to cut production due to reduced demand from the US.