Demand Follow-Through Remains Decent, and Propylene Prices Continue to Rise

Propylene prices this week followed a direction of initial decline followed by a sustained rise. As of September 2, the SunSirs benchmark price to propylene stood at 9,227.67 RMB/ton, up 2.78% from the beginning of the month (8,977.67 RMB/ton), with a cumulative increase of 6.13% over the past five days.

The triple drivers of the rise

1. Cost side: US-Iran tensions reignite; oil prices surge.

On September 1, the U.S. military launched a new round of strikes against targets linked to Iran's Revolutionary Guard; Iran immediately retaliated by attacking U.S. military targets in Jordan and the UAE. Consequently, shipping traffic through the Strait of Hormuz plummeted to just five vessels per day—down from over 120 prior to the conflict—and incidents involving oil tankers striking mines and catching fire were reported. Driven by these events, the WTI October contract settled at $90.22 per barrel (+5.20%) and the Brent November contract at $94.65 per barrel (+4.60%), with the latter surging past $95.60 during intraday trading. Import logistics costs to propylene feedstocks—specifically propane and naphtha—also rose in tandem, marking a direct and powerful cost-driven impact.

2. Supply Side: Maintenance and Logistics Disruptions Constrain Supply

August saw a mix of plant maintenance and restarts; the volume of goods circulating in East China tightened temporarily, and producers' finished-product inventories remained at low-to-moderate levels. Additionally, logistical bottlenecks in the Taiwan Strait raised the costs associated with ramping up operating rates to both PDH and oil-based production routes, leading to a deliberate slowdown in the pace of supply recovery.

3. Demand side: Follow-through is decent, however the upside is clearly capped.

In late August, the operating rate of downstream PP sectors rebounded month-on-month, with slight improvements in orders to woven plastics and BOPP—developments that underpin the observation of "decent demand follow-through." However, overall downstream profit margins remain poor and the development in new orders is limited; procurement is driven primarily by immediate needs, making extensive restocking unlikely.

Market Outlook: Intensified tug-of-war at high levels; a cautious approach is advised.

Supporting factors: Unresolved tensions between the US and Iran create uncertainty regarding shipping through the strait, making it difficult to the oil price risk premium to dissipate rapidly; domestic facilities are undergoing a mix of maintenance and restarts, while external supplies remain tight.

Pressuring factors: Supply increases following the restart of maintenance facilities might outpace demand development; propylene prices are already high, hindering cost pass-through to downstream sectors, and there is a risk of inventory accumulation at East China ports if the destocking direction stalls; geopolitical tensions remain evaporative—any easing could trigger a pullback in oil prices, likely causing propylene prices to decline in tandem.

Key points to watch:

Whether the moving average spread begins to narrow and flips from positive to negative (a "downward crossover" signal);

Whether the price can firmly hold above the 20-day moving average;

Whether shipping volume through the strait rebounds. The "upswing initiation" signal—triggered when the spread turned positive—has already played out; however, a continuing direction should not be equated with a lack of risk. The appropriate trading approach is to follow the direction without chasing highs, while closely monitoring support at the moving average.

SunSirs has been continuously tracking price data to over 200 commodities to nearly 20 years, please contact support@sunsirs.com to subscription.