Jun PP Production Profit Different via Various Feedstock Sources
Highlights: PP production profits via various feedstock sources mostly ramped up in May. Therein, coal-based PP producers faced severer profit losses, mainly as coal-based PP price decline speeded up, but steam coal prices dropped at a slower rate. For crude oil-based, PDH-based and outsourced propylene-based PP producers, their profitability improved a lot. In particular, PDH-based PP production profits increased remarkably. SCI predicts that PP prices will grasp opportunities to grow within a narrow range, so there may be a limited possibility for profits to turn losses into gains.
Crude Oil-Based PP Production Profit Analysis and Forecast
Crude oil-based PP production profits bulged by 19.87% or RMB 185/mt M-O-M and averaged RMB -746/mt in May, as production cost represented a severer decrease than PP price. The monthly average price of crude oil dropped by 9.79% M-O-M to $75.89/bbl in May, which indicated that crude oil-based PP production costs declined by 6.44%. Comparatively, crude oil-based PP EXW prices declined by 4.79%. On a year-on-year basis, crude oil-based PP production profits in May grew by RMB 968/mt or 56.48%.
It is estimated that the international crude oil prices will hover at highs, and the WTI crude oil prices will probably hover at $70-75/bbl in June. On the one hand, market participants pay close attention to whether the Fed will raise interest rates in June, which will probably impact the international crude oil market somewhat. On the other hand, Saudi Arabia and some other countries intend to cut crude oil production, and the production data for May is likely to be released in June. It is estimated that the Fed will not raise the interest rate, and the actual crude oil production cut may be lower than expected. With macro pressure alleviating and limited support from crude oil production cut, it is predicted that the international crude oil prices will hover at high levels in June. Accordingly, the crude oil-based PP production costs will probably change little, but crude oil-based PP prices may slide, so the profits are likely to dip to RMB (-1,000) – (-700)/mt in June.
Coal-Based PP Production Profit Analysis and Forecast
Coal-based PP production profits sank by 24.64% or RMB 171/mt M-O-M and averaged RMB -865/mt in May, with PP price decline wider than that of costs. The costs from coal-based PP production dropped by 2.82% or RMB 227/mt in May with steam coal prices shedding, yet the average price of coal-based PP declined by 5.4%, far larger than that of cost decline. On a year-on-year basis, coal-based PP production profits in May tumbled by RMB 963/mt or 982.65%.
In June, the production of coal mines in the producing area is stable, and some coal mines have large inventory pressure. At the same time, the port inventory is high, and the market supply is relatively abundant. In terms of demand for coal with high calorific value, imported coal is more likely to be favored by domestic users than Chinese-made coal by virtue of price advantage.
From the perspective of the non-electric industry, the end demand for industry-used coal is relatively sluggish under the background of weak economic recovery, and the overall demand for coal is also lackluster. Coal-based PP production costs may further decline with strong supply and weak demand, but coal-based PP prices are likely to decrease as well, so the profits may change limitedly within RMB (-900) – (-400)/mt in June.
Outsourced Methanol-Based PP Production Profit Analysis and Forecast
Outsourced methanol-based PP production profits rebounded in May. The average price of methanol dropped by RMB 155/mt or 7.07% M-O-M to RMB 2,038/mt, reflecting a decrease of 5.90% in production costs. Meanwhile, methanol-based PP prices declined less by 5.55% M-O-M, so the profits ramped up. The average profit from outsourced methanol-based PP production was RMB -489/mt, up RMB 58/mt or 10.06% M-O-M.
Methanol market prices may represent different trends in various regions in June. After methanol prices kept falling in May, some market demand emerged, which is expected to constrain the price downward range. If the restart of olefin units cannot be released as expected, inland methanol prices will further trend down. Generally, methanol prices are likely to linger at lows, and PP prices may encounter serious declines, so the outsourced methanol-based PP production profits will possibly be compressed to RMB (-550) – (-400)/mt in June.
PDH-Based PP Production Profit Analysis and Forecast
Profits from PDH-based PP production perked up in May, and the average profit was RMB -162/mt, up RMB 134/mt or 45.27% M-O-M. Propane import prices averaged $538/mt in the month, falling by $63/mt or 10.48% M-O-M and leaving a drop of 6.47% in PDH-based PP production cost. Comparatively, PDH-based PP prices shed slightly by 4.96% M-O-M, so the profits from PDH-based PP production improved.
China’s propane prices are supposed to go down in June. China’s propane output is likely to be relatively low, but its import volume may remain high. Meanwhile, it is predicted that propane CFR China in June will be lower than that in May, suggesting that low-priced import cargoes will impact China’s propane market. Of course, the buoyant outlook for industry-based demand will probably support propane prices, but the driving impetus may be limited amid the demand dull season. In summary, China’s propane prices are projected to spiral around lows in June, while the bottom line may continue to inch lower. PDH-based PP prices may also register a slight downtick, so the profits may be largely stable at RMB (-200) – 50/mt.
Outsourced Propylene-Based PP Production Profit Analysis and Forecast
The outsourced propylene-based PP production profits brightened in May, and the profits averaged RMB -386/mt, up RMB 61/mt or 13.65% M-O-M. China’s propylene market prices went down in May. Some propylene units were restarted in succession, and the PDH unit operating rate saw a notable increment. Moreover, some newly added propylene units were brought on stream in southern China. Accordingly, the overall propylene supply rose, and propylene producers experienced severer sales pressure. PP prices fluctuated downward, so PP powder producers experienced severe profit losses, notably dragging down the demand for propylene. Some chemical downstream units took overhauls, exerting bearish impacts on propylene demand. Therefore, propylene prices hit a three-year low. Propylene prices averaged RMB 6,673/mt in September, down RMB 430/mt or 6.05% M-O-M, which made outsourced propylene-based PP production costs shed 4.96%. Comparatively, PP prices showed a smaller decline, so the producers’ profits enlarged.
It is estimated that China’s propylene prices will hover at lows in June. In terms of costs, propane prices are likely to remain weak in June, failing to boom propylene prices. On the supply side, with unit restart and new units being put into use, the overall propylene supply will probably be ample, so propylene producers are likely to experience severe sales pressure. Profits from PP production may underperform, dragging down the propylene demand. Generally, SCI predicts that propylene market prices will probably linger at lows in June, and the monthly average price may inch lower. In addition, PP prices are also likely to slide. Therefore, profits from outsourced propylene-based PP production may fluctuate marginally within RMB (-500) – (-200)/mt.
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