Polyolefin Daily: Geopolitical Tensions Continue, Cost Support Remains Strong

Market Highlights and Important Data

In terms of price and basis, the closing price of the L main contract was 8,412 yuan/ton (+23), the closing price of the PP main contract was 8,771 yuan/ton (+19), the spot price of LL in North China was 8,380 yuan/ton (+150), the spot price of LL in East China was 8,450 yuan/ton (+130), and the spot price of PP in East China was 9,220 yuan/ton (+0). The basis of LL in North China was -32 yuan/ton (+127), the basis of LL in East China was 38 yuan/ton (+107), and the basis of PP in East China was 449 yuan/ton (-19).

On the upstream supply side, PE operating rate was 72.7% (+2.2%), and PP operating rate was 62.6% (-0.2%).

In terms of production profit, the PE oil-based production profit is -1600.6 yuan/ton (-168.8), the PP oil-based production profit is -940.6 yuan/ton (-168.8), and the PDH-based PP production profit is -1221.9 yuan/ton (-133.3).

In terms of imports and exports, the import profit for LL is -883.1 yuan/ton (+51.6), the import profit for PP is -970.4 yuan/ton (-0.4), and the export profit for PP is 222.5 USD/ton (-0.1).

Downstream demand: PE agricultural film operating rate is 24.6% (-3.8%), PE packaging film operating rate is 47.2% (-0.9%), PP woven sack operating rate is 42.7% (-0.2%), and PP BOPP film operating rate is 63.2% (-0.3%).

Market Analysis

In terms of the geopolitical situation between the US and Iran, there is currently no substantial improvement in the US-Iran negotiations, and the negotiation plans are at a standstill. The duration of the Strait of Hormuz blockade continues to extend, raising concerns about supply disruptions in the global crude oil market. In the short term, oil prices have risen significantly again, driving up propane prices and increasing the cost support for olefins. Attention should be paid to the dynamics of the negotiations between the two parties, and the recovery of olefin raw material supplies still needs to wait.

In PE, upstream production recovery remains slow, with the supply side still maintaining high maintenance. Meanwhile, due to the high price difference between HD and LL, some full-density units have switched to producing low density, leading to increased HD output and reduced linear output, which has resulted in a contraction in standard product supply. On the demand side, downstream production has declined, and overall demand has not kept up, mainly due to the end of the film season, with agricultural film production dropping significantly; while packaging film production has seen a slight decline, with demand mainly supported by necessities. The negative feedback on the demand side continues, and upstream inventory reduction remains difficult, while social inventory is slowly decreasing. In the short term, the tense situation between the US and Iran remains, supporting the low supply side. However, weak demand continuation leads to a double weakness in the supply and demand fundamentals. The dynamics of US-Iran negotiations should continue to be closely monitored.

For polypropylene (PP), upstream facilities that underwent maintenance earlier are gradually restarting, while the number of newly shut-down facilities is decreasing. Upstream operating rates are gradually bottoming out and rebounding. However, due to the relatively high number of maintenance events earlier, the recovery of supply remains slow, supporting near-term prices. Meanwhile, as propane prices strengthen again, PDH (propane dehydrogenation) margins have once again plunged deeply into losses, casting renewed doubt on the expected resumption of PDH facilities. On the demand side, downstream cost pass-through remains sluggish; squeezed profits have led downstream buyers to adopt a cautious procurement stance, with BOPP and plastic weaving operating rates declining slightly. Overall, PP supply and demand remain weak on both sides. De-stocking at upstream and midstream levels has slowed, and market participants are closely monitoring the potential resumption of PDH facilities and downstream demand recovery.

One-sided: Cautiously establish long hedging positions on dips.

Inter-temporal: None

Cross-species: None

Risks: Geopolitical developments in Iran, significant oil price volatility, propane price fluctuations, and the return of upstream units from maintenance.