PPH-propylene delta hits 9-month low in China

In China, mid-June marked a turning point for both the import PPH and propylene markets. Since then, while import homo-PP raffia and inj. prices have dropped from their 16-month highs, spot propylene on a CFR China basis has mostly followed an uptrend, except for the first week of July. This led to a significant decrease in the delta between them.

According to ChemOrbis Price Index data, the premium that China’s import homo-PP raffia and inj. prices carried over propylene stood at $30/ton as of the week ending on August 2, indicating the lowest gap since late November 2023. The gap declined by 74% when compared to early June when it reached around a one-year high of $115/ton.



PPH on 2-month slide due to weak supply-demand dynamics

China’s PP markets have been weighed down by reducing demand and increasing supply, with the off-season coinciding with the return of several plants after a heavy turnaround season.

A Xiamen-based trader said, “There is an oversupply due to fewer scheduled maintenances and the gradual restart of previous shutdowns. As the traditional seasonal lull continues, downstream order entry remains limited, and inventories of end products are high, leading to low interest in raw material procurement.”

Therefore, PP sellers have conceded to poor buying enthusiasm and abundant availability, issuing a series of price cuts. A major Saudi Arabian producer also announced its August homo-PP offers to China with visible decreases of $40/ton compared to July levels, at $890/ton on CIF, cash basis. This marked the first resurgence of Middle Eastern offers under the $900/ton level since late March.

The weekly average level of import homo-PP raffia and inj. prices has hit a four-month low of $920/ton following a two-month downslide, ChemOrbis data show.

C3 posts fresh increases on tightening supply

On the other hand, propylene prices posted renewed increases after two weeks of stability. As of July 31, spot propylene prices on CFR China rose by $10/ton from the previous week to reach the highest level of $890/ton since May 2023, according to ChemOrbis data.

The recent upturn was mainly fueled by tightening supply across the region and inside China. Major South Korean producers have reduced cracker run rates since June due to falling production margins, while further cuts are anticipated for August and September.

This, accompanied by scheduled cracker turnarounds, has led to a reduction in supply.
Adding to the scene was renewed demand, with traders sourcing August cargoes to fulfill term contracts for buyers in East and South China.

Can the reducing gap halt PPH’s ongoing downtrend?

The narrow delta between spot propylene and import homo-PP raffia and inj. prices justified players’ comments that cost support is here to stay. Nonetheless, given the persistently low demand throughout the off-season and an excess of supply, most of them are still concerned about additional weakening in the PP markets. “PP production costs remain supportive, but weak buying interest and subdued sentiment come to the fore,” opined another trader.

Propylene prices are expected to remain stable in August and rise further into September due to run rate cuts at crackers, despite the fact that oil futures have fluctuated considerably and remained below the $80/bbl threshold in the latest settlement. Robust propylene feedstock might reinforce PP’s cost support and minimize the bearish pressure from weak supply-demand fundamentals. As a source at a producer put it, “The room for additional declines is likely to be limited due to cost pressure.”