China PP, PE outlook weighed by tariff turbulence: Growing supply meets shrinking export options

China’s PP and PE markets are facing mounting pressure as a wave of new capacity additions coincides with weakening export demand amid escalating trade tensions. With the US, China’s largest export market for finished goods, now largely out of reach, China’s rapidly expanding polymer production capacity will be put to the test. While domestic demand is expected to play a pivotal role in absorbing excess supply, alternative export markets remain uncertain.

Over the past month, China’s PP and PE markets have been on a persistent downtrend, primarily due to a sluggish demand recovery and mounting oversupply pressure. Among the major grades, LDPE and HDPE film have shown the weakest performance, falling to nearly a 1-year low and a 5-year low, respectively. Meanwhile, PP grades and LLDPE film have demonstrated slightly more resilience. The escalation in US-China trade tensions, marked by retaliatory tariffs, has added fresh headwinds, casting a bearish tone across the markets. With no clear resolution in sight, a significant price recovery seems unlikely for now.

Demand: Further slowdown is inevitable

The escalating trade war between the world’s two largest economies has significantly dampened demand for both PP and PE in China, particularly in export-oriented sectors. Continuous tariff hikes have led to a widespread pause in market activity, with both sellers and buyers adopting a cautious stance. "Downstream operating rates have been lower than usual, limiting procurement. Now, buyers are even avoiding need-based purchases,” noted a source from a Saudi Arabian producer.

As uncertainty clouds the outlook, demand is expected to remain fragile. New tariffs are likely to curtail export opportunities to the US, meaning many downstream manufacturers may scale back operations or delay procurement, further softening demand for PP and PE resins. "As an export-oriented product, PP faces dual pressure from falling exports and reduced local operating rates, making a price recovery unlikely in the short term," said a trader.

Although some domestic sectors, such as PP woven packaging, continue to exhibit seasonal demand, this is insufficient to offset the broader decline in export-driven consumption. In fact, export prospects have worsened. According to market sources, many buyers from Vietnam—China’s leading PP importer—have begun avoiding Chinese-origin cargoes, concerned about the implications of US tariffs on exports of their own finished goods which uses Chinese inputs. Besides, the country government’s intensified inspection on raw materials, especially imports from China, may also weigh on Vietnamese buyers’ appetite for Chinese PP supply.

Supply: Expansion overshadows loss of US-origin PE

The PP and PE markets are also strained by China’s aggressive capacity expansions. While China’s new tariffs on US PE are expected to sharply reduce imports, this is unlikely to ease the growing oversupply in the country. “China’s new tariff on US PE is expected to sharply reduce imports from the US. The impact will be greater this time due to the larger import volume, now at 2.4 million tons, more than three times that of 2018,” said one trader.

Meanwhile, there were some speculations in the media earlier in April suggesting that China might impose a 20% tariff on all HDPE imports from the US starting May 1, by imposing a much smaller tariff than the general tariffs on US imports. However, this information has yet to be confirmed by market players at the time of writing, leaving the industry in uncertainty regarding the potential impact.

China’s aggressive capacity expansion is likely to outweigh the loss of US-origin cargoes. The first quarter of 2025 has already seen 1.8 million tons/year of new capacity, with an additional 4 million tons/year expected. For PP, China commissioned three new PP plants within Q1, adding 2.3 million tons/year of capacity. Another 5.45 million tons/year of PP capacity is slated to come online later this year, primarily in Q2 when the trade war remains heated.

Given this context, the absence of US supply becomes relatively insignificant. China’s PP and PE markets are burdened by a surplus, and these capacity additions will likely add further pressure on prices, creating an increasingly bearish market outlook in the near term.

Futures and costs: Volatility escalates

PP and LLDPE futures on the Dalian Commodity Exchange have fallen sharply since April 3, following the US’s sweeping tariff announcements. PP dropped by CNY171/ton ($23/ton), while LLDPE futures experienced a steeper decline of CNY491/ton ($71/ton)—a clear reflection of market pessimism and bearish sentiment, likely to spill over into spot markets.

Additional downward pressure stems from weakness in crude oil and key feedstocks. Both Brent and WTI (NYMEX) benchmarks have plunged into the low-$60s/bbl, marking their lowest levels since April 2021. Spot prices for ethylene and propylene on CFR China have also been on a persistent downtrend for over a month, falling to their multi-month lows of $830/ton and $820/ton, respectively, as of April 11. These declines are undermining cost support for PP and PE pricing.

Despite this, PDH-based PP producers may face higher costs due to their reliance on US propane. “About 25% of PP supply comes from PDH, which relies on US propane for about 60% of its feedstock. This leads to a 40% cost increase for PDH units, forcing them to seek alternative sources or buy propylene directly,” a trader explained.