Rising Costs Weaken China’s PP and PE Export Competitiveness

China’s position as a key supplier helping Southeast Asia cope with polyolefin supply disruptions has shifted significantly since the US-Iran conflict began earlier this year. Initially, Chinese producers helped replace some of the Middle Eastern volumes lost to disrupted shipments. However, export offers for polypropylene (PP) and polyethylene (PE) have since increased sharply as feedstock costs rise, production margins narrow and suppliers face less flexibility in managing supply.

This change highlights a growing challenge for China’s petrochemical industry. Years of capacity expansion have created substantial production potential, but prolonged disruptions to energy and feedstock supplies are weakening the cost advantages that previously enabled Chinese producers to compete aggressively in export markets. With inventories under pressure and manufacturing margins squeezed, large installed capacity is no longer translating into equally abundant low-priced material.

The impact is becoming increasingly evident across Southeast Asia. Chinese homo-PP offers have moved above competing South Korean prices, while Chinese LLDPE film quotations in Vietnam are significantly higher than offers from the United States and the Middle East. This raises questions about whether China can continue providing the same degree of support to regional polyolefin markets that it offered during the initial phase of supply disruptions.

From Alternative Supplier to Higher-Cost Exporter

When the conflict disrupted Middle Eastern polyolefin shipments to Asia, Chinese suppliers became an important alternative source. Substantial export volumes of PP and PE helped replace part of the missing supply, reducing the immediate impact on Southeast Asian markets and moderating the pace of price increases.

China exported more than 800,000 tons of homo-PP to Southeast Asia in the first half of 2026, accounting for nearly 60% of the region’s total imports, according to trade data. These volumes demonstrated China’s growing importance as a regional supplier while traditional trade flows faced disruption.

However, the prolonged conflict has increasingly changed the economics of China’s export business.

Although some energy shipments from the Persian Gulf have recovered, Iranian crude supplies have been severely disrupted by the US blockade, while regional naphtha exports remain constrained. A recent Bloomberg report indicated that China’s petrochemical industry has increasingly relied on inventories accumulated during years of overproduction as feedstock availability tightened and production costs climbed.

With replacement feedstocks becoming more expensive, producers have less room to offer discounts. Consequently, Chinese suppliers are finding it increasingly difficult to maintain the price advantage that supported their expansion across Southeast Asia earlier this year.

Chinese PP and PE Offers Lose Their Price Advantage

Chinese homo-PP raffia and injection offers were reported at $1,300–1,380/ton FOB China this week, with the midpoint reaching its highest level since March 2021. Market discussions suggested that some suppliers might increase FOB offers to $1,400/ton or higher, although these indications had not been confirmed at the time of reporting.

Chinese PP raffia offers to Southeast Asia also climbed to $1,400–1,450/ton CIF following post-holiday increases of approximately $100/ton or more. In comparison, South Korean material remained available at around $1,390/ton CIF, placing Chinese offers above those from a competing regional supplier.

The price gap was even more pronounced in Vietnam’s PE market. Chinese LLDPE film offers stood at $1,370–1,380/ton CIF, compared with around $1,250/ton for US-origin material and approximately $1,300/ton for Middle Eastern supplies.

These differences show how higher production and replacement costs are weakening China’s price competitiveness, even as polyolefin markets across the region remain generally firm.

However, rising offers have not been matched by a meaningful recovery in demand. Southeast Asian converters continue to resist successive price increases, with many restricting purchases to immediate requirements amid weak downstream consumption and pressure on processing margins.

Chinese sellers therefore face a difficult choice. Raising prices to protect margins risks losing business to competing origins, while offering substantial discounts would place additional pressure on already challenging production economics.

Feedstock Inflation Puts Producers Under Pressure

Higher upstream costs have become a major factor behind China’s changing export position.

Spot propylene prices on a CFR China basis increased by approximately 55% from early July to reach $1,350/ton by October 20, a six-month high. Ethylene prices also rose by around 44% from mid-July to $1,180/ton CFR China, although the increase has been more limited since early October.

The sharp rise in propane and propylene costs has intensified pressure on the PP production chain. Higher ethylene prices and broader energy costs have also increased the cost burden on PE producers.

A trader highlighted the difficult economics facing PP suppliers, pointing to propane prices of approximately $970/ton CFR Japan. Based on these costs, the trader estimated that producing propylene through the propane dehydrogenation (PDH) process would cost around $1,300/ton before accounting for the additional expense of converting propylene into PP.

“With propane already at $970/ton, producing propylene would cost around $1,300/ton. Add the cost of making PP on top of that, and how can producers afford to sell raffia at $1,300/ton FOB? There is virtually no margin left. They are effectively selling at a loss,” the trader commented.

Actual production costs vary according to feedstock sources, plant integration and operating conditions. Nevertheless, the estimate illustrates the growing pressure on non-integrated producers and helps explain why Chinese suppliers have become increasingly reluctant to offer aggressive export discounts.

Continued disruption to Middle Eastern feedstock flows has also made fresh production more expensive across China’s petrochemical sector. Higher crude and feedstock costs have further squeezed already weak margins, limiting producers’ willingness to increase output despite firmer downstream prices.

The result is a market in which China still has substantial structural overcapacity, but higher production costs and reduced operating rates are limiting the amount of material suppliers are prepared to offer at competitive prices.

Lower Post-Holiday Inventories Ease Immediate Supply Pressure

China’s domestic inventory figures provide another indication that current market conditions differ from previous periods of severe oversupply.

Combined PP and PE inventories held by CNPC and Sinopec increased by 140,000 tons during the National Day holiday, reaching 790,000 tons on October 8. Although inventories rose, the increase was considerably smaller than the 255,000-ton buildup recorded during the comparable holiday period in 2025.

The post-holiday inventory level was also below the 845,000 tons recorded in 2025 and approximately 915,000 tons in 2024.

These figures suggest that Chinese producers faced less immediate inventory pressure after the holiday than in previous years, potentially giving them greater flexibility to maintain higher prices.

However, lower inventories do not mean that China’s structural oversupply has disappeared. Expanding domestic polyolefin capacity remains a source of longer-term pressure, while weak downstream demand continues to limit the market’s ability to absorb further price increases.

Overall, China’s role as a source of competitively priced PP and PE for Southeast Asia is being challenged by rising feedstock costs, tighter supply flexibility and squeezed production margins. While its large production base remains important to the regional market, the ability of Chinese suppliers to offset disruptions through low-priced exports has weakened considerably.

Stay ahead of market trends with the Credco app. For any queries, please reach out via WhatsApp at +91 8448083211.