SunSirs: Speculative Sentiment Driven by Costs Fuels Strong China PP Rebound in Early July

According to data from SunSirs, the domestic polypropylene (PP) market rebounded significantly during the first half of July, with prices rising across various product grades. As of July 14, the benchmark price for PP (drawing grade) was quoted at 9,093.33 RMB/ton, marking a 14.53% increase since the beginning of the month.

Regarding raw materials: Despite positive signals regarding high-level talks between the US and Iran in mid-June, recent volatility has jeopardized ceasefire prospects. Risks to shipping in the Strait of Hormuz have risen, sparking concerns about international crude oil supplies and causing a rapid return of the geopolitical risk premium. As international oil prices rebounded, the long-term cost basis for PP strengthened; propylene prices rose in tandem. Meanwhile, domestic supply tightened due to plant shutdowns at companies like HSBC, and frequent export opportunities further absorbed domestic inventory; these combined bullish factors drove prices up. Overall, raw material trends have had a positive impact on PP costs.

Regarding supply: The overall operating rate of the domestic PP industry saw a slight rise from a low level during the first half of July. Plants at companies such as Dushanzi Petrochemical and Zhongjing Petrochemical resumed operations; notably, Dushanzi’s new 450,000-ton capacity unit in Tarim successfully completed trial runs, raising expectations of increased market supply. As of this writing, the industry's overall operating load exceeds 66%, with weekly production recovering to nearly 780,000 tons. Current inventory stands at approximately 540,000 tons, indicating generally ample supply. Overall, the supply side offers limited support for spot prices.

Regarding demand: Polypropylene consumption remains at off-season levels. Furthermore, rising costs have squeezed profit margins for end-users, maintaining strong resistance to high prices in downstream markets. However, the strengthening cost basis and futures-spot spread have stimulated trading activity, prompting some inventory-building orders. Overall, market sentiment remains cautious, with trading characterized largely by small orders placed at lower price points. Operating rates among small and micro-enterprises have seen limited improvement, while large and medium-sized enterprises continue to digest inventory steadily; the aggregate operating rate remains below 45%. The demand side remains generally weak, providing little support for PP prices. Domestic PP market prices staged a strong rebound during the first half of July. Regarding fundamentals, cost-side factors saw the return of geopolitical premiums; industry operating rates edged up from low levels, while the arrival volume of imported material at ports remained largely unchanged. On the demand side, the off-season trend persisted, with little likelihood of a significant surge in volume in the short term. Analysts at SunSirs believe that, despite certain imbalances between supply and demand, the PP market is rising rapidly, driven by cost factors.

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