By: Alex Hodes, Energy Analyst - KC Energy
Supply
The supply side appears ample but producers have started to moderate their operating rates. U.S. and Canadian PE production fell 6.8% from May to June but still are running at elevated levels of 92.7%. Year-to-date production numbers are up 8% since 2025. Days of inventory fell from 54 days in May to 49.9 in June, which is above the 12-month and 24-month averages - indicating that inventories are well-supplied.
Demand
Domestic demand remains stable but exports have softened substantially. The balancing act has been by producers who have started to throttle rates lower. Domestic demand was up 4.1% from May to June but buyers remain cautious after several months of falling prices and are largely restocking only as needed.
Export demand is a large concern after the huge surge in exports helped lift markets in April and May. Year-to-date exports are still up from 2025 but May export levels are reported to be near the lowest level since October of 2024. Buyers abroad have stepped back and are waiting for lower prices. However, the recent escalation once again in the Middle East could have buyers start to jump back in.
Data Source: American Chemistry Council, Chemical Market Analytics by OPIS *Forecasts shaded in yellow
Data Source: American Chemistry Council, Chemical Market Analytics by OPIS *Forecasts shaded in yellow
Feedstocks
Ethylene costs moved slightly higher in July but the feedstock prices have not offset the weaker resin fundamentals. Further upstream, natural gas prices continue to move lower - hitting their lowest point in 2026. North America still has a structural cost advantage, but that advantage is being diluted by weak export netbacks, Chinese export competition, and the possibility that Middle East supply gradually returns. The EU tariff removal on U.S. PE is a constructive development and should support flows into Europe, but it is unlikely to fully offset the broader global oversupply pressure.
Price Outlook
PE contract pricing was down 10cpp on the month and the momentum continues to be moving lower. However, current markets are pricing their lowpoint in October before stabilizing. Markets still have a large amount of upside potential - with the Strait of Hormuz and expanded disruptions in the Red Sea affecting oil and gas markets. Supportive crude oil prices should eventually spill over into feedstock pricing, and any ethylene production disruptions could cause price spikes but the current momentum is down.
Polypropylene (PP)
Supply
North American PP supply is healthy but producers are throttling rates currently - going from 82.8% in May to 80.3% in June. Production in 2026 is still outpacing 2025 levels but now we are seeing days of inventory tightening somewhat. Outages in August and September could add to the drop in inventory and production is expected to stay capped.
Demand
Domestic demand is steady but it has not been enough to absorb production if exports start to retreat. Domestic demand is up 1.4% from May to June and almost flat with 2025 year-to-date levels. End-use demand is mixed but is stronger than demand in PE. Exports remain elevated but are expected to decline ahead. Exports are up 58.6% year-over-year in May from 2025 as buyers look to the U.S. to fulfill their appetite. Continued disruptions in the Strait of Hormuz may provide more support for U.S. exports and will provide the outlet for markets to be supported.
Data Source: American Chemistry Council, Chemical Market Analytics by OPIS *Forecasts shaded in yellow
Data Source: American Chemistry Council, Chemical Market Analytics by OPIS *Forecasts shaded in yellow
Feedstocks
PGP spot prices were volatile. U.S. PGP spot prices ranged from the high 30s to the high 40s cpp during July due to outages, but prices fell into the low-to-mid 30s by the end of the month. Capacity availability fell to 83% in July, down 3 percentage points from June. Enterprise PDH 1 had a brief disruption, Enterprise PDH 2 was offline in mid-July, and Dow’s PDH was down for planned maintenance. There is expected to be a return of some PDH plants in August which could put pressure downward on PGP and the big question will be whether China reduces its PDH rates if the Strait of Hormuz remains closed.
Price Outlook
PP prices are expected to move lower in August. July GP homopolymer contract prices moved to 73.5-77.5 cpp, and injection-molding copolymer moved to 76.5-81.5 cpp. Spot domestic PP fell 3.25 cpp in July to 52.5 cpp FOB Houston, while export prices averaged 56 cpp FAS USGC and DAP Laredo prices fell to 55.75 cpp. The disconnect between higher contracts and weaker spot/export values is the key reason margins are expected to compress. Feedstock modeled PP prices are about 5-6cpp lower than what CMA indexes are pointing to - suggesting margin compression is expected.
The biggest upside risk is renewed Middle East disruption. If the Strait of Hormuz or Bab el-Mandeb remain restricted and Middle Eastern PP exports cannot normalize, the expected August/September margin compression may need to be revised. The potential upside is where the risk lies - especially in the very near-term to Q4 of 2026.
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A conflict-driven bid in crude is no longer just an energy story, because a rising geopolitical risk premium travels straight into inflation expectations. Fiona Cincotta unpacks how that premium reaches bond yields, central bank policy and risk assets.
September 9 – Nearby Brent crude oil futures have broken above $100 for the first time in over six weeks amid fresh escalations targeting energy assets in both the Middle East and Black Sea. A tit-for-tat cycle of strikes on vessels in and around the Strait of Hormuz has persisted in recent days, with CENTCOM reporting U.S. strikes having destroyed five Iranian crude oil tankers yesterday, then Iran escalating overnight, claiming attacks on two U.S. naval vessels and eight oil tankers in the Gulf, though that has not yet been verified by the U.S. What stood out to me regarding yesterday’s strikes was the targeting of an Iranian oil tanker near the anchorage area of Kharg Island, Iran’s primary oil export hub. The proximity of this strike to Kharg Island could be interpreted as a deliberate warning: Washington is demonstrating its ability to hit Iran’s oil-export system at the doorstep of the country’s principal crude terminal while, for now, stopping short of targeting the infrastructure itself. At the same time, Ukraine carried out heavy strikes on Russia’s Novorossiysk, the country’s top Black Sea port for commodity shipment. While confirmed details are still sparse, the Russian naval base in the area appears to have been the top target, with energy terminals damaged as well, but no damage to grain infrastructure has been reported at this time. On the other side, Russia continued their campaign of heavy strikes across Ukraine, including an ongoing focus on Black Sea port cities, with Mykolaiv reportedly suffering notable damage. The other notable target was the border crossing from Ukraine into Moldova at Starokozache, highlighting Russia’s new campaign targeting alternate routes for Ukrainian grain shipments amid the effective closure of the Black Sea. Both wars are increasingly becoming wars against commodity logistics, keeping support under the broader complex as traders await what comes next.
September 8 – Geopolitical escalation remains in focus to start the short week, with stock futures pointing to a mixed open and WTI crude oil prices posting a fresh three-month high amid a ramp-up in fighting in both the Middle East and Black Sea. The VIX is up notably from its 2026 low posted on Friday but remains relatively muted as it trades above the 15.4 level. The dollar is quietly lower to start the day, hovering around 98.84 at the time of writing. Treasury yields are also quietly lower to start the day, with the sharpest declines seen at the long-end of the curve; 2-year yields are trading at 4.37%, 10-year yields at 4.77%, and 30-year yields at 5.225%. Nearby WTI pushed to its highest level in exactly three months earlier in the session but has since pulled back to trade near $92.90, up ~1.8% on the day, while nearby Brent pushed to its highest level since July 24th earlier in the session but has pulled back to trade near $97.50 at the time of writing, up only ~0.4%. The ags are widely mixed, with the biggest strength being seen in the wheat complex after weekend talks failed to produce any major results, which we’ll dive into in more depth below.
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