Polyolefin Monthly Report: Stronger Cost Support, Focus on Downstream Follow-up Before the Holiday

Market News and Key Data

For prices and basis, the L main contract closed at 7014 yuan/ton (-35), the PP main contract closed at 6824 yuan/ton (-46). LL North China spot was 6850 yuan/ton (-40), LL East China spot was 6920 yuan/ton (-30), PP East China spot was 6640 yuan/ton (+0). The LL North China basis was -164 yuan/ton (-5), LL East China basis was -94 yuan/ton (+5), and PP East China basis was -184 yuan/ton (+46).

Upstream supply: PE output last month was 3.01 million tons (+12), LLDPE output was 1.43 million tons (+9), PE operating rate was 84% (+0%); PP output last month was 3.56 million tons (+9), PP operating rate was 75% (-1%).

Regarding production profit, PE oil-based production profit is -115.3 RMB/ton (-30.1), PP oil-based production profit is -635.3 RMB/ton (-30.1), and PDH-based PP production profit is -531.2 RMB/ton (-55.1).

Regarding imports and exports, PE December imports were 1.33 million tons (+27), and exports were 90,000 tons (+1). PP December imports were 330,000 tons (+3), and exports were 270,000 tons (+1).

LL import profit: 108.7 RMB/ton (+58.1); PP import profit: -284.9 RMB/ton (+38.2); PP export profit: -74.4 USD/ton (-4.9).

In terms of downstream demand, PE downstream agricultural film operating rate is 36% (-8%), PE downstream packaging film operating rate is 46% (-3%), PP downstream woven bag operating rate is 43% (-1%), and PP downstream BOPP film operating rate is 63% (+0%).

Market Analysis

Polyethylene PE

Supply side: Regarding new production, only Shandong Yulong's 300,000 tons/year #2 LDPE/EVA new plant started production and released volume in January. New PE production in 2026 is temporarily slowing down and mainly concentrated in the second half of the year. The first quarter is a vacuum period for polyolefin production (Shandong Yulong Petrochemical's new capacity is mainly EVA units). The LL2605 contract does not face pressure from new production in the near term. Regarding maintenance of existing plants, according to Longzhong Information, the planned maintenance volume for PE in China in February involves 2.69 million tons of capacity, but most of this is a continuation of shutdowns from previous maintenance. The newly planned maintenance volume in February is limited, and the operating rate is expected to rebound again. Judging from the current maintenance plan, the overall maintenance volume in the first quarter of 2026 is also not high, further exacerbating domestic supply pressure. However, considering that importers' willingness to accept goods may decrease before the Spring Festival due to inventory costs, this may partially alleviate import supply pressure.

Imports and Exports: China's polyethylene (PE) imports in December reached 1.3299 million tons, a year-on-year increase of 4.62% and a month-on-month increase of 25.21%. Since the end of December, China's PE import window has reopened, with increased arrivals of low-priced US resources and Iranian resources in December. However, attention should be paid to the continued escalation of US-Iran tensions, which is affecting import offer prices. At the same time, due to the proximity of the Spring Festival and port inventory costs, the willingness to take delivery has decreased. PE import arrivals may decline in January-February.

Demand side: PE downstream demand continues to show off-season characteristics, and overall downstream operating rates continue to decline. Among them, agricultural film operating rates have significantly decreased, mainly due to the diminishing and concluding demand for northern greenhouse films, while demand for mulching films has not yet significantly picked up. Agricultural film enterprises' order days and raw material inventory days have both decreased month-on-month. At the same time, enterprises' willingness to stock up before the Spring Festival holiday may further decrease. Packaging film operating rates have also slightly declined, and downstream order expectations are slowly decreasing. PE demand is expected to remain weak before the holiday, with attention focused on the anticipated strength of phased replenishment after enterprises resume production post-holiday.

Inventory: In January, PE prices continued to rise, boosted by sustained positive influences from the cost side and macro sentiment. Market trading improved, and downstream companies increased their restocking efforts. Upstream enterprises actively reduced inventories before the holiday to digest existing stock, resulting in a month-on-month decline in upstream inventories and a transfer of stock to intermediate traders, primarily in the form of LLDPE social inventory accumulation. The overall PE social inventory level was neutral compared to the same period last year. In the later period, with continued upward pressure on supply and continuous weakening of downstream demand, the destocking pace of intermediate traders may slow down. PE may still face inventory accumulation pressure around the Spring Festival.

Summary: Geopolitical tensions continue to escalate, driving a significant rebound in crude oil prices, which in turn strengthens cost-side support for PE. Market sentiment for polyolefins remains high. From a fundamental perspective, on the supply side, the number of restarted units in the short term, including Sinopec Quanzhou and Maoming Petrochemical, is relatively high, while the planned maintenance volume is limited. The peak of short-term maintenance has passed, and with the opening of the import window, there have been many recent arrivals of resources. There is an expectation that PE supply-side pressure will rebound. On the demand side, PE downstream continues its off-season characteristics, with overall downstream operating rates continuing to decline. Among them, agricultural film demand is down due to the off-season, and packaging film operating rates are also relatively low compared to the same period. Downstream market order follow-up is weak before the holiday. Overall, the fundamentals of the plastics supply and demand have not seen a substantial reversal and have weakened somewhat. Under the pattern of increasing supply and decreasing demand, the pressure of destocking will still be relatively high in the later stage. However, the current fundamental drivers are limited, and the resonance of the cost side and macro sentiment is still the main driver of the market. The sustainability of the rebound still needs to focus on macro guidance and the progress of PE inventory destocking.

Polypropylene PP

Supply: Regarding new capacity additions, PP production is essentially in a lull in the first half of 2026. There is no pressure from new capacity additions before the PP2605 contract. The most recent confirmed new capacity is the 500,000-ton oil-based PP capacity of Zhenhai Refining & Chemical in June. Regarding maintenance of existing units, as propane prices continue to strengthen, PDH profit losses have deepened. Maintenance of PDH units, including Qingdao Jineng, Wanhua Penglai, Dongguan Grand Resource, and Zhongjing Petrochemical, has been gradually implemented. With the shutdown of major units, PP maintenance volume will be relatively high this month, and operating rates will decline month-on-month. According to Longzhong Information, there are no new planned maintenance schedules in February, and PP maintenance losses may decrease significantly month-on-month. However, it is still necessary to pay attention to the dynamic of loss-making maintenance of PDH units under the pressure of persistently strong propane prices and PDH profits.

Imports and Exports: China's polypropylene imports in December 2025 were 332,400 tons, a month-on-month increase of +9.02%. The cumulative imports from January to December 2025 were 3,368,200 tons, a year-on-year decrease of -8.26%. Exports were 267,800 tons, a month-on-month increase of +4.04%. The cumulative exports from January to December 2025 were 3,101,400 tons, a year-on-year increase of +28.87%. Due to weak overseas demand and the entry of low-priced imported resources, the PP import window opened slightly, and import volume continued to rise. On the export side, as cost support led to a significant increase in PP market prices, the export window closed, and domestic PP exports are expected to decline month-on-month in this period.

Demand: PP downstream continues to exhibit off-season characteristics in February, with overall operating rates remaining weak. Only BOPP maintains support with its operating rate at a high level compared to the same period last year. Order days and raw material inventory days are also continuously increasing. However, downstream order follow-up may be limited due to factors such as downstream companies' holidays before the Spring Festival, and the overall downstream operating rate is expected to remain stable or decline slightly. Inventory: Upstream companies actively destocked before the holiday, with inventory declining month-on-month and shifting downstream. Intermediate traders slightly reduced their inventory, but the absolute level of social inventory remains high compared to the same period last year. Furthermore, February faces seasonal inventory accumulation due to the Spring Festival. With limited demand follow-up, pressure to destock after the holiday is expected to persist.

Summary: Recent geopolitical disturbances have intensified, leading to a significant rebound in international oil prices. Furthermore, the CP official price for propane in February increased by $20/ton month-on-month, slightly exceeding market expectations. The near-term trend for propane remains strong, providing firm cost support for PP. Driven by both cost factors and macroeconomics, the PP market continues to perform robustly. From a fundamental perspective, the supply side is currently experiencing deep losses in PDH production. PDH-to-PP units such as Juzhengyuan and Zhongjing are gradually implementing maintenance, which is expected to alleviate short-term supply pressure. However, with the resumption of operations at Ningbo Jinfat's second line and Sinochem Quanzhou, and limited new maintenance, supply is still expected to increase. On the demand side, downstream industries are still in their off-season, with seasonal declines expected ahead of the Spring Festival holiday. New PP orders may be limited, and demand support remains insufficient. Overall, the current PP supply-demand structure is still weak. The cost side is supported by the rebound in oil-based costs and the continued strength of propane feedstock. The market outlook is trending upwards due to the resonance between cost factors and macroeconomic sentiment. However, destocking pressure during the current demand off-season may limit the upside potential. Macroeconomic changes and the operational status of PDH units will be closely monitored going forward.

Unilateral: LLDPE and PP are cautiously advised to buy on dips for hedging purposes. Short-term cost-side fluctuations are on the stronger side, and macro sentiment continues to drive the market. Short-term price increases may continue, but attention should be paid to the current weak supply-demand fundamentals of polyolefins. The sustainability of the rebound may be limited once the market returns to fundamental logic. Continued attention should be paid to changes in geopolitical situations and the follow-up of downstream demand.

Inter-month: L05-09 contract spread, initiate reverse arbitrage at higher levels.

Cross-commodity: Short L-PP spread on rallies.

Geopolitical turbulence eases; propane prices weaken; fewer upstream units under maintenance than expected.