War-Driven Cost Increases Weaken China’s PP and PE Export Competitiveness

China’s position as an alternative supplier helping Southeast Asia manage polyolefin supply disruptions has changed significantly since the US-Iran conflict began earlier this year. Initially, Chinese producers helped compensate for reduced Middle Eastern shipments. However, their latest polypropylene (PP) and polyethylene (PE) export offers have risen sharply as feedstock costs climb, production margins narrow and supply flexibility declines.

This shift highlights a growing challenge for China’s petrochemical sector. Years of capacity expansion have created substantial production potential, but prolonged disruptions to energy and feedstock flows are eroding the cost advantage that once supported aggressive export pricing. As inventories tighten and manufacturing economics deteriorate, large installed capacity no longer guarantees an abundant supply of competitively priced material.

The impact is becoming increasingly apparent across Southeast Asia. Chinese homo-PP offers have moved above South Korean prices, while Chinese LLDPE film quotations in Vietnam are significantly higher than comparable US and Middle Eastern material. These developments raise doubts about whether China can continue to cushion regional markets against supply disruptions to the same extent as earlier in the year.

From Alternative Supplier to Higher-Cost Seller

When the conflict first disrupted Middle Eastern polyolefin shipments to Asia, Chinese suppliers became an important alternative for regional buyers. Strong export volumes helped replace some of the missing supply, easing immediate shortages and limiting the initial pace of price increases across Southeast Asia.

China shipped more than 800,000 tons of homo-PP to Southeast Asia during the first half of 2026, accounting for nearly 60% of the region’s total imports. These volumes demonstrated the country’s growing importance in regional trade while traditional supply routes faced disruption.

However, as the conflict continued, the economics supporting China’s export growth began to change.

Although Persian Gulf energy shipments have recovered to some extent, Iranian crude supplies have been severely affected 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.

Higher replacement costs have reduced producers’ willingness to offer discounts. Consequently, Chinese suppliers are finding it harder to maintain the price advantage that helped them expand their Southeast Asian market share 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 during the week, with the midpoint reaching its highest level since March 2021. Market indications suggested that some suppliers might raise FOB offers to $1,400/ton or higher, although these reports had not been confirmed at the time.

Prices for Chinese raffia supplied to Southeast Asia also climbed to $1,400–1,450/ton CIF following post-holiday increases of around $100/ton or more. In comparison, South Korean material remained available at approximately $1,390/ton CIF, putting Chinese suppliers at a disadvantage against a competing regional source.

The gap is even wider 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 demonstrate how higher production and replacement costs are weakening China’s price competitiveness, even as regional polyolefin markets remain generally firm.

Demand, meanwhile, has not strengthened enough to comfortably absorb successive price increases. Southeast Asian converters continue to push back against higher offers, limiting purchases largely to immediate needs as downstream consumption remains weak and processing margins come under pressure.

Chinese sellers therefore face a difficult choice. Raising prices to protect margins could drive buyers towards alternative origins, while offering discounts to retain market share would place further pressure on already strained production economics.

Feedstock Inflation Puts Producers Under Pressure

Rising upstream costs have become a major factor behind China’s changing position in export markets.

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

The steep rise in propane and propylene costs has intensified pressure on the PP production chain. Higher ethylene prices, alongside broader energy-cost increases, have also raised the cost of producing PE.

One trader highlighted the difficult economics facing PP producers, citing propane prices of approximately $970/ton CFR Japan. Based on these levels, the trader estimated that producing propylene through the propane dehydrogenation (PDH) process would cost around $1,300/ton before including the additional expense of converting propylene into PP.

The trader noted that with propane already near $970/ton, propylene production costs could reach approximately $1,300/ton. After adding the cost of manufacturing PP, selling raffia at $1,300/ton FOB would leave virtually no margin and could result in losses.

Although actual production costs differ according to feedstock routes, plant integration and operating conditions, this calculation illustrates the growing pressure on non-integrated producers. It also helps explain why Chinese suppliers have become less willing to offer substantial export discounts.

Disruptions to Middle Eastern feedstock flows have made fresh production more expensive across China’s petrochemical industry. Higher crude and feedstock costs have squeezed margins, discouraging some producers from expanding output despite firmer downstream prices.

The market is consequently facing a contradiction: China has substantial structural overcapacity, yet rising production costs and reduced operating rates are limiting the amount of material available at competitive export prices.

Lower Post-Holiday Inventories Ease Immediate Supply Pressure

Domestic inventory figures offer another indication that current conditions differ from earlier periods of pronounced oversupply.

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

The latest inventory level was also below the 845,000 tons recorded in 2025 and the approximately 915,000 tons seen in 2024.

The smaller post-holiday buildup suggests that Chinese producers faced less immediate inventory pressure than in previous years, potentially giving them greater scope to maintain higher prices.

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

China remains a major supplier to Southeast Asia, but the combination of expensive feedstocks, squeezed margins and firm export offers is reducing its ability to provide low-cost alternatives. Whether it can continue to cushion regional markets will depend on future feedstock availability, production economics and the willingness of buyers to accept higher prices.

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