PP Price Variation amid Anti-Involution and Fundamentals
Introduction: July is experiencing scorching summer and typically a seasonal dull demand period for the PP industry, but PP market prices rebounded against the seasonal trend, primarily boosted by policy regarding “anti-involution” and “phase-out of outdated capacity”. However, whether this short-term surge will catalyze broader industry transformation remains to be seen.
In July, PP market prices registered a downtrend amid high temperature and soft demand. However, prices stabilized last week. As of July 24, the average price of raffia materials in East China grew by RMB 23/mt or 0.33% WOW to RMB 7,097.78/mt.
Bullish Macro Information Supports Market Sentiment
General macro information has created a supportive atmosphere for commodity market sentiment. The Sixth Meeting of the Central Financial and Economic Affairs Commission on July 1 emphasized focusing and solving enterprises’ disorderly low-price competition, regulating enterprises’ behavior, guiding firms to enhance product quality and facilitating the orderly exit of outdated capacity. Buoyed by the meeting’s expectations, overall commodity market sentiment has improved, driving up the main PP futures contract price. Producers and traders have shown stronger price-supporting intentions. In addition to supportive policy guidance, various financial data released in July also beat market expectations, indicating a shift toward a moderately accommodative monetary policy.
Outdated & Long-Idle Capacity: Optimization Still Requires Policy Support
Based on current polyolefin capacity conditions, outdated propylene units in upstream industry were mainly at early-development oil-based enterprises like Sinopec and PetroChina. Among old PP units aged over 20 years, crude oil-based PP capacity accounts for 91% of the total outdated capacity. Units with capacity of below 100kt/a (including 100kt/a capacity) took up nearly 70% of the total outdated units, and those with capacity of 100kt/a-200kt/a occupied 20% or so. There were only three outdated PP units with above 200kt/a capacity. This reveals that outdated capacity predominantly consists of small-scale units, whose production efficiency has progressively lagged due to technological obsolescence, environmental compliance costs and competitive pressure.
Accelerating the phase-out of such capacity would optimize the industrial landscape. However, there are barriers currently. For instance, the geographic dispersion of PP units is wide. They play a prominent role in contributing to regional GDP growth. The elimination of units also involves workforce relocation complexities. Producers with old units are conducting technological revamps, or some old units are planned to be replaced by new ones.
Consequently, eliminating outdated PP capacity faces implementation hurdles. Rather than full shutdowns, the dominant approach remains new-for-old substitution, which may arouse limited improvement to the olefin supply chain structure.
Given unclear policies with delayed implementation timelines and impending new plant startups, PP market is supposed to get limited impact from the policy in the short run. The counter-seasonal rally has heightened trader caution, while downstream buyers remain hesitant due to weak orders and operating rates, leaving hedgers as primary market participants. Persistent oversupply from delayed capacity adjustments and upcoming production expansions continues to fuel sentiment-driven trading, hindering price gains amid unrelieved fundamental pressure. In terms of macro factor, market players are recommended to focus on future changes in Sino-U.S. tariffs and post-policy-meeting implementation efficiency.
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