August witnessed upward momentum in polypropylene (PP) prices, leading to divergent profitability trends across the five major production routes. Oil-based and coal-based producers saw gross margins surge by 33.27% and 9.01% month-on-month, respectively. Conversely, the methanol-based route experienced a decline in profits, while the PDH route swung sharply into negative territory. The external propylene procurement route managed only marginal improvement. Looking ahead to September, expectations of firm crude oil and feedstock prices, combined with robust underlying PP market fundamentals, suggest room for modest profitability recovery across various production methods.
Oil-based PP producers see margins climb
In August, the average gross profit for oil-based PP manufacturers stood at 774.51 yuan per tonne, an increase of 193.35 yuan per tonne, or 33.27%, compared with the previous month. The Brent crude oil price center moved higher, averaging 87.88 US dollars per barrel. Consequently, the average production cost for oil-based PP rose to 8,469.44 yuan per tonne, a month-on-month increase of 353.23 yuan per tonne, or 4.35%. During the month, the average selling price of oil-based PP reached 9,243.95 yuan per tonne, up 546.57 yuan per tonne, or 6.28% month-on-month. As the cost increase lagged behind the price increase, profitability for oil-based PP producers improved. This elevated profit level is projected to persist in September. Significant disagreements remain between the US and Iran regarding the Hormuz Strait, with stalled negotiations and firm stances on both sides, heightening geopolitical risk premiums that support firm oil prices. However, the actual impact on shipping is considered weaker than market expectations due to an increasing number of shadow tankers and improved transit efficiency. Furthermore, as US refinery run rates decline from seasonal highs later in September, US oil demand is expected to taper, leading to potential inventory builds. Therefore, while oil prices are likely to remain elevated in the first half of September due to geopolitical risks, a downward correction could occur in the latter half. A sudden breakthrough in negotiations or the reopening of the strait could trigger consecutive oil price declines. Overall, the crude oil price center is expected to remain firm in September, providing robust cost support for oil-based PP, while PP prices are also likely to be strong. As such, margins for oil-based PP are unlikely to see a significant pullback in the short term.
Coal-based PP route posts higher profits
August saw an increase in profitability for coal-based PP producers, with average gross profits reaching 1,807.38 yuan per tonne, up 149.34 yuan per tonne, or 9.01%, from July. Thermal coal prices rose slightly, pushing the average cost for coal-based PP to 7,190.99 yuan per tonne, a month-on-month increase of 276.99 yuan per tonne, or 4.01%. The average selling price climbed to 8,998.37 yuan per tonne, up 426.33 yuan per tonne, or 4.97%. Since the price increase outpaced the cost increase, gross margins for coal-based PP expanded. Modest margin improvements are anticipated for September. Coal prices are expected to undergo a period of narrow, range-bound adjustments followed by a stronger upward trend. On the supply side, safety inspections at mines remain stringent, but as production resumes in regions like Shanxi, supply is anticipated to improve slightly. On the demand front, downstream buyers may adopt a watchful stance initially, with steady demand purchases prevailing. Later in the month, some users may begin pre-winter stocking, potentially accelerating procurement and driving coal prices upward. Overall, while cost support for coal-based PP is expected to remain firm in September, PP prices are also anticipated to strengthen, leading to a slight improvement in margins.
Methanol-based PP profitability declines in August, recovery foreseen
Profits for PP producers using externally purchased methanol fell in August. The average gross profit was 529.52 yuan per tonne, a decrease of 420.93 yuan per tonne month-on-month. The average methanol price rose to 2,462.14 yuan per tonne, an increase of 263.96 yuan per tonne, or 12.01%, pushing the average production cost for methanol-based PP up by 791.88 yuan per tonne, or 10.29%. Despite PP prices increasing by an average of 370.95 yuan per tonne (4.29%), this rise was insufficient to offset the steeper cost escalation. Consequently, profitability for this route contracted. A slight overall increase in profits is expected for September. The methanol market is predicted to remain relatively strong. While supply may stay low due to varying start-up and shutdown plans among producers, and producer inventories remain low, demand from some traditional downstream sectors is expected to be steady. Olefin plants may increase procurement compared with August, driven by improved economics. The tight supply situation is likely to persist, potentially pushing the transaction price center higher. Unexpected reductions in domestic and international supply had already helped coastal methanol prices hit a near two-month high in August. With both methanol-based PP costs and PP prices expected to remain firm, a modest rise in gross margins is projected.
PDH route swings to losses, but rebound likely
August saw PDH-based PP producers experience a significant margin squeeze, with average gross profit turning negative at -143.59 yuan per tonne, a sharp decline of 233.29 yuan per tonne, or 260.08%, from July. Propane prices rose, lifting the average cost for PDH-based PP to 9,182.64 yuan per tonne, up 665.52 yuan per tonne, or 7.81%. The average selling price increased by 432.22 yuan per tonne, or 5.02%, to 9,039.05 yuan per tonne. As the cost increase outweighed the price increase, margins deteriorated. A slight profit recovery is expected in September. The propane market is anticipated to strengthen. Domestically produced propane supply is expected to increase, but fewer imports are anticipated, likely tightening overall supply. September's contract price (CP) is expected to be slightly lower than August's, yet import costs remain high. With expectations of higher operating rates at downstream PDH units, chemical demand is set to rise, and combustion demand is also poised to recover from its bottom. These supportive factors are expected to drive propane prices upward in a fluctuating pattern, providing firm cost support. With PP prices also expected to rise, PDH-based PP margins are likely to improve.
Propylene-based PP margins edge higher
Profits for PP producers purchasing propylene externally saw a marginal improvement in August, with average monthly profits at -251.74 yuan per tonne, up 14.48 yuan per tonne, or 5.44%. The average cost rose to 9,312.74 yuan per tonne, an increase of 415.74 yuan per tonne, or 4.67%. Meanwhile, the average selling price increased by 430.22 yuan per tonne, or 4.98%, to 9,061 yuan per tonne. Since the price increase slightly outstripped the cost increase, margins ticked higher. Looking to September, crude oil prices are expected to remain elevated, offering some cost support to the propylene market. Several plants under maintenance are planned to restart, potentially increasing industry operating rates and somewhat alleviating the tight propylene supply. Producer inventory pressure is expected to be manageable, although some may face periodic sales pressure. Downstream product costs are considered controllable, and factories retain a certain capacity to accept current propylene prices. Overall, propylene prices are expected to remain at relatively high levels next month. If PP prices strengthen, the profitability trend for this route will depend on the comparative magnitude of changes between propylene costs and PP prices. Overall, a narrowly fluctuating or stable pattern is expected, with no significant unilateral movement anticipated.
Looking toward September, the price center for core raw materials such as crude oil is expected to remain strong, providing solid cost support for PP. Combined with fundamental factors—concentrated maintenance schedules and weak expectations for new capacity additions, which should keep industry operating rates from rebounding significantly—and the potential for the peak demand season to drive PP prices higher, there is a high probability that profitability across all major production routes will experience modest recovery.
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