Dalian PP futures trigger correction in China’s overheated spot market

China’s domestic homo-PP raffia and injection market has started to lose momentum this week after reaching its highest levels since October 2021, as falling crude oil prices and a persistent decline in Dalian futures triggered corrections in the spot market. Local prices, which had surged by a cumulative 45% since early March, fell by CNY200-400/ton ($29-59/ton) from last week’s peak levels.

Dalian futures, crude correction weigh on sentiment

September PP futures on the Dalian Commodity Exchange posted four consecutive daily losses, settling lower by CNY99/ton ($15/ton) on May 21, CNY111/ton ($16/ton) on May 22, CNY142/ton ($19/ton) on May 25, and another CNY157/ton ($20/ton) on May 26.

The downturn in futures coincided with a sharp retreat in global crude oil markets after reports suggested that the US and Iran were moving closer to a potential peace agreement. Brent crude futures fell back below the $100/bbl threshold, easing some of the geopolitical risk premium that had fueled petrochemical markets during the past three months.

Market players said the softer energy complex and futures weakness rapidly translated into China’s local PP spot market, where prices had already been considered overheated after the recent rally.

Market corrects after touching highest levels since 2021

China’s local homo-PP raffia and injection market had climbed sharply between early March and early April during the war-driven rally, posting gains of around 38% amid fears over supply disruptions tied to the Iran-US conflict and the closure of the Strait of Hormuz.

After moving sideways for nearly five weeks, the market resumed its upward trajectory over the past two weeks as prompt supply tightened further due to ongoing plant maintenance shutdowns. Prices peaked last week, bringing total gains since early March to around 45% and lifting the market to its highest level since October 2021, as per data from ChemOrbis Price Index.

However, sentiment shifted this week as buyers turned increasingly cautious.

“Local prices fell this week due to the plunge in crude oil and PP futures,” a Shanghai-based trader said, adding that downstream demand remained weak and buyers were resisting elevated prices. “Buyers prefer local products instead of imports due to lower prices and lower risk. Most buyers are purchasing only for basic needs while waiting on the sidelines.”

Another trader also noted that both local and export prices had “fallen sharply” amid weaker crude oil and futures markets, while adding that “done deals are low” due to sluggish domestic and export demand.

Tight supply still offers support against deeper declines

Despite the correction, several market participants stressed that PP fundamentals remain relatively firmer than PE, largely due to tighter supply conditions.

A trader noted that prompt PP supply was still expected to decline slightly even though some plants had resumed operations after maintenance, since many units remain shut. Another trader argued that PP continued to attract stronger bullish interest than other petrochemical products because it is considered one of the tightest-supplied commodities in China’s polymer markets.

“The PP supply remains tight,” the trader said. “Southeast Asian and Middle Eastern cargoes have already quoted higher prices, and order volumes are expected to increase in the future.”

Meanwhile, a Shanghai trader said import offers for Middle Eastern PP grades had also softened this week in line with falling feedstock costs, although imported cargoes continued to remain significantly higher than locally produced coal-based and oil-based Chinese material.

According to the trader, Chinese buyers continue to favor domestic cargoes over imports because of lower prices and reduced risks, while many overseas suppliers are increasingly redirecting Middle Eastern and Northeast Asian cargoes to Southeast Asia, where netbacks remain more attractive.