H2, 2022 China PP Price to Ramp up Before Drops
Foreword: Polypropylene (PP) prices were mixed in the first half of 2022. Firm feedstock cost and deficient supply promoted PP prices to record high. However, PP demand at home and abroad performed weakly, especially in Q2, undermining the price increase. Compared with the same period of 2021, PP prices moved within a narrower range in H1, 2022, influenced by the supply, demand and cost. SCI reckons that PP supply will become brimming in the second half of this year. Meanwhile, crude oil values and PP downstream demand will set the pace of PP prices. The prices are expected to drop after climbing, while mainstream prices will inch lower.
China’s PP market prices presented a topsy-turvy V-shaped trend in H1, 2022. As for PP raffia in East China market, the highest price was RMB 9,500/mt in H1 March, while the lowest price was RMB 8,120/mt in mid-January. The average price was RMB 8,602.30/mt in the first half of this year, which dropped by RMB 79.77/mt or 0.92% Y-O-Y. For PP copolymer in East China market, the highest price was RMB 9,600/mt in H1 March, while the lowest price was RMB 8,230/mt in mid-January. PP copolymer prices averaged RMB 8,630.76/mt in the first half of this year, down RMB 59.56/mt or 0.69% Y-O-Y.
Between January and early March, PP prices climbed from lows. Therein, January and February encountered demand slack season, the Spring Festival holiday and capacity expansion, reflecting excess supply of PP. Thus, PP prices declined to the lowest level in the first half of 2022. After the Spring Festival holiday, crude oil values appreciated quickly. Deals also improved on the expectation that downstream procurement will be intensive during the demand peak season. As a result, PP prices went up rapidly and recorded high in early March.
Between mid-March and June, PP market prices trended downwards. High crude oil prices were normalized, and its impact on the PP market weakened gradually. In terms of fundamentals, supply of PP was not ample, but soft demand dragged down the price. PP producers faced profit losses, and they curtailed operating rates initiatively to levels of 80% to 85%. At the same time, local producers took measures to control the inventory level. However, downstream demand for PP was sluggish, hindering the price. Confronting restricted logistics, downstream enterprises in East China and South China maintained low operating rates, high inventory of finished goods and low inventory of feedstock, as well as met resistance in export business. The average operating rate in plastic woven industry dropped to around 45%-49%. Downstream users stocked up on an as-needed basis to reduce risks of PP price decline. Besides demand, the futures market and strategy also affected the price temporarily.
There were many factors influencing PP price trend in 2022, and the major price drivers were as follows:
Newly Added Capacity Meeting Intensive Maintenance
China’s PP capacity continued expanding in 2022. Newly added capacity totaled 1,980kt/a in the first half of the year, and China’s PP capacity has reached 33,040kt/a as of now. In the first quarter, relatively concentrated commissioning of new units pushed up PP supply. However, international incidents triggered energy supply crunch in March. Surged crude oil prices exerted high cost pressure on PP producers, and some producers cut back production or shut units down. Moreover, a lot of units underwent maintenance as planned. Therefore, PP supply was not plentiful as expected in Q1. In Q2, supply was deficient because of limited capacity expansions, unit maintenance and operating rate reduction. In H1, 2022, crude oil-based PP capacity played a prominent role in the capacity expansion, and that mostly occurred in East China.
China’s PP output was 14,812.2kt between January and June, up 6.54% Y-O-Y due to the start-up of new units, despite relatively intensive maintenance and operating rates cuts. In H1, 2022, each month saw a Y-O-Y increase in output on the back of capacity release.
Frequent Adjustment in Production Causing Noticeable Changes in Supply Structure
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