China’s Domestic PP, PE Markets Extend Gains on Dalian Rally Despite Rising Stocks, Muted Demand Recovery

China’s domestic PP and PE markets opened the new week with further gains, supported by a strong rally in Dalian futures and higher crude oil prices. However, the market remains caught between improving cost support and weak fundamentals, as domestic polyolefin inventories increased sharply while downstream demand has yet to show a meaningful seasonal recovery.

September LLDPE futures rose by CNY190/ton ($28/ton) and September PP futures gained CNY167/ton ($25/ton) on Monday. Both contracts have now recorded gains for seven consecutive trading sessions since August 7, providing strong support to domestic market sentiment.

Dalian Strength and Higher Crude Support Prices

The continued rally in Dalian futures has been a key driver behind the latest increase in domestic PP and PE prices. Market sentiment also received support from the People’s Bank of China’s recent CNY1 trillion ($147 billion) six-month outright reverse repo operation, which helped maintain ample liquidity in the banking system.

Higher crude oil prices have further strengthened the cost base. In the PE market, domestic LDPE film prices were reported to be around CNY400/ton ($59/ton) higher than last week. LLDPE film prices increased by approximately CNY150/ton ($22/ton), while HDPE film gained around CNY300/ton ($45/ton).

Domestic PP prices also moved higher, with gains of roughly CNY150/ton ($22/ton) reported during the week. However, market participants said that weak downstream demand continues to limit the strength of the physical market.

Rising Inventories Limit Market Optimism

Despite the rally in futures and domestic prices, physical market fundamentals remain less supportive. The combined polyolefin inventories of China’s two major producers reached 710,000 tons on August 17, an increase of 100,000 tons from the previous working day, reflecting a significant stock build-up over the weekend.

The inventory increase is notable as the market approaches the traditionally stronger Golden September–Silver October demand period. Instead of a clear acceleration in destocking, inventories have risen, raising concerns about whether downstream consumption will recover strongly enough during the peak season.

Buyers remain cautious, with most purchases focused on immediate requirements. Domestic material is currently preferred over imports because of lower prices and reduced purchasing risks, but this has not resulted in a broad improvement in overall demand. New orders remain limited, inquiries are weak and trading activity continues to be subdued.

Tight Supply Provides Some Support

Supply-side factors are helping prevent stronger downward pressure. Increased maintenance activity and relatively low-to-moderate industry operating rates have kept PP availability comparatively tight. However, destocking across upstream and midstream markets remains slow due to the lack of stronger consumption.

PE supply conditions are also providing enough support to sustain current price levels. Still, with downstream demand remaining weak, the latest gains are being driven mainly by stronger futures, higher crude oil prices and rising production costs rather than a significant improvement in actual consumption.

Market Rally Faces a Demand Test

The sustainability of the current rally will largely depend on whether downstream demand improves in the coming weeks. Overseas demand also remains relatively weak, while some bearish players have started selling into the market following the recent price gains.

For now, continued uncertainty surrounding the Strait of Hormuz is keeping crude oil prices relatively firm and supporting the cost structure. China’s domestic PP and PE markets may remain stable to slightly higher in the near term, but a stronger and more sustained rally will likely require a clear improvement in downstream demand and faster inventory reduction.

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