Polypropylene Analyst: Xue Minghui The trajectory of PP prices in 2025 is closely linked to oil price movements. In early January 2026, a geopolitical dispute between the United States and a South American nation, a significant global holder of heavy oil reserves, has sparked market concerns over the global crude oil supply landscape and price expectations. For PP, fluctuations in crude oil prices also influence the polypropylene market through cost dynamics. Over the next 1-2 weeks, crude oil prices may continue to support an upward trend in PP prices, but it is anticipated that cost support will struggle to outweigh fundamental pressures, limiting upside potential; PP market prices in January 2026 are forecast to rise initially before declining.
Crude oil is a direct upstream input for polypropylene production, and supply changes in major producing regions are closely tied to international oil price volatility. Sharp oil price swings impose significant cost pressures on PP producers using the naphtha route, squeezing their profit margins. From 2021 to 2025, the correlation between PP price trends and crude oil prices weakened initially before strengthening again, with the correlation coefficient remaining above 90%. Over the past five years, crude oil prices showed a pattern of modest gains followed by volatility and then a retreat. Since 2020, oil prices entered a downturn after completing a full economic cycle. From 2021 to mid-2022, oil prices generally experienced strong volatility with a gradually rising trend, even breaching $120/barrel at one point. This was primarily supported by two factors: first, global central banks implemented "quantitative easing" policies, including the Fed and ECB; second, Saudi production controls coupled with improving demand kept crude supplies relatively tight, leading to strong fundamental performance. From 2023 to 2025, oil prices trended downwards overall, mainly due to a shift in Fed monetary policy, where consecutive interest rate hikes and balance sheet reduction created a high-interest-rate environment and economic slowdown, weakening oil demand. Although geopolitical events like the Israel-Hamas conflict, Iran-Israel tensions, and repeated US/EU sanctions against a European nation occasionally triggered brief, pulse-like price spikes, oil prices subsequently fell again without sustaining a prolonged rally. In 2025, crude oil continued its volatile decline, trading mainly within a $60-80/barrel range, and this downward price trend pulled the cost center for oil-based PP production lower.
As the cost of oil-based PP production fell further to low levels, chronically loss-making oil-based PP producers saw some profit recovery. In December 2025, oil prices generally showed weak and volatile performance, with relatively limited support factors in the market. On January 3, 2026, the US initiated military action against a South American nation. As the US imposed new sanctions, including restrictions on oil exports such as seizing tankers, geopolitical risks intensified, causing oil prices to rebound from lows and supporting PP prices. On the first trading day after the holiday, PP futures opened higher but then traded erratically; however, market sentiment remained cautious, with post-holiday PP market price increases limited to just 30-100 yuan/ton.
From 2021 to 2025, China's PP export market evolved from steady growth to rapid expansion, with 2025 expected to set another record high. Export volume is projected to reach 3.1406 million tons, a 30.52% increase from 2024, potentially making China a "net exporter." Chinese PP producers actively promoted export diversification, gradually expanding from primary markets in Southeast and South Asia to more diverse regions including South America, Central Asia, Africa, and even Europe, thereby dispersing risk and increasing total PP export volume. Major trade partners in South America are Brazil and Peru; demand development in this region has accelerated, and export arbitrage opportunities are relatively favorable. Driven by active efforts from domestic companies, trade volumes exported to South America have increased in recent years. However, due to fluctuations in sea freight and weaker-than-expected demand, some export orders were affected within the year, causing the regional share of exports to drop by 1.64 percentage points to 12.43%. Meanwhile, trade exports between the specific South American nation and China are still in their early stages. Cumulative PP exports to this nation from January to November 2025 amounted to only 18,000 tons, a minimal share, suggesting that the impact of the geopolitical dispute on the PP market is expected to be limited.
Looking 1-2 weeks ahead, supported by cost factors, PP prices may continue a slight upward trend. However, as the geopolitical event subsides and with the latest statement from Donald Trump on January 6 indicating potential US subsidies for energy companies to rebuild the South American nation's oil industry, subsequent oil production is expected to recover and even gradually increase, gradually diluting the event's impact. This would simultaneously exacerbate supply-demand pressures during the demand off-season. The PP market is likely to revert to being guided by fundamentals. Although there are expectations for pre-Chinese New Year restocking by downstream users, many factories will begin holiday closures in the latter part of the month. Coupled with increased supply pressure within the month prompting companies to actively promote sales, the market may resume a downward trend after a short-term rise. Overall, the domestic PP market in January 2026 is expected to rise initially but succumb to fundamental pressures and turn lower. The price range for homo-filament grade PP in January is forecast to be between 5,950 and 6,350 yuan/ton.
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