In August, the profitability of polypropylene (PP) across its main production processes saw an upward trend, despite facing downward pressure from rising feedstock costs. However, as we move into September, the market is witnessing a complex interplay of geopolitical tensions and shifting supply dynamics that are set to shape the profit landscape. While the recovery in earnings was notable last month, the outlook for September suggests a more nuanced picture, with profit repair anticipated despite persistent cost challenges.
By the end of August, escalating geopolitical conflicts and rising raw material prices had pushed up PP production costs, leading to a deterioration in profitability across multiple production routes. This has constrained operating rates as planned maintenance shutdowns increased, raising the risk of a further contraction in supply rather than a recovery in the near term. The ongoing volatility in the Middle East, coupled with inefficient passage through key shipping lanes, has kept energy market sentiment buoyant, driving up prices for crude oil, propane, methanol, and propylene—the key feedstocks for PP production.
During the week spanning August 31 to September 4, propane CFR South China frozen cargo weekly average prices rose to $922.8 per metric ton, a 6.62% increase from the previous week's $865.5 per ton. On a year-over-year basis as of September 4, propane prices were up a significant 58.94%. Similarly, the weekly average price for propylene in Shandong increased by 2.78% to 9,311 yuan per ton, marking a 40.80% year-on-year surge in early September. Methanol also climbed, with weekly average prices rising 8.94% to 2,931 yuan per ton, a 46.34% increase compared to the same period last year.
The ripple effect of these rising feedstock costs has been considerable. The average weekly cost for propane dehydrogenation (PDH)-based PP production jumped to 10,165 yuan per ton, up 501 yuan per ton from the prior week, a 5.18% increase and 28.30% higher year-on-year. Propylene-based PP production costs rose by 5.42% weekly to 10,097 yuan per ton, up 37.47% year-on-year, while methanol-based PP costs climbed 7.86% weekly to 9,893 yuan per ton, a 39.31% increase compared to last year. In early September, geopolitical tensions have not only pushed costs up sequentially but have also left them at conspicuously elevated levels compared to 2024.
However, the increase in PP product prices has not kept pace with the surge in feedstock and production costs, leading to a further deterioration in profit margins across most process routes. The average weekly gross profit for PDH-based PP fell to -623 yuan per ton, a decline of 157 yuan per ton from -466 yuan the previous week, representing a 33.69% drop. Propylene-based PP saw its weekly average gross margin fall to -555 yuan per ton, a 46.05% week-on-week decline. Furthermore, the average weekly gross profit for methanol-based PP turned negative for the first time, dropping 399 yuan per ton to -410 yuan. Meanwhile, the rising cost of naphtha has kept oil-based PP margins hovering around the breakeven point or slipping into losses.
The deteriorating profitability and rising losses have prompted a wave of production cuts and maintenance shutdowns across the industry. From late August into early September, several units, including Fujian United's new second line, Xuzhou Haitian, Zhongjing Petrochemical's third phase second line, and Jincheng Petrochemical, suspended operations. Consequently, the operating rate for PDH-based PP declined by 2.28 percentage points to 79.34%. Propylene-based PP utilization rates saw a more dramatic fall of 19.05 percentage points to 60.95%, while methanol-based PP inched down 0.12 percentage points to 78.19%
Looking ahead, additional shutdowns are planned this month for units operated by Tianjin Bohua, Ningbo Jinfai, and Ningbo Fude, while the restart of facilities like Hainan Refinery has been postponed. These factors are expected to cap any recovery in overall industry operating rates, meaning the supply shortage in the short term is unlikely to see any effective alleviation.
Given the combination of historically high production costs, deep losses across multiple process routes, constrained marginal supply, low inventory levels among holders, and substantial forward selling, the pace of supply recovery for PP is falling short of expectations. The structural shortage in the spot market is likely to persist in the near term, and geopolitical volatility continues to pose a risk of further contraction rather than a rebound in supply. Market participants will be watching closely for the actual release of new domestic production capacity and any definitive timelines for the restart of previously halted units.
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