【SCI View】Impact of External Market on PP Industry Softened

Impact of External Market on PP Industry Softened

Preface

On the evening of August 23, China announced that it would impose tariffs on U.S.-origin goods, including PE, PP, propane resources and other chemicals. On the morning of August 24, Donald Trump sent a response to impose tariffs on some of China’s exported commodities, affecting the export of downstream plastic products.

In general, SCI believes that the short-term aggravation of the trade war will drag down the domestic PP market. First of all, the continuous Sino-U.S. trade friction has intensified and weighs on the global economy. The end demand for durable goods has been restricted. Secondly, the export volume of our domestic downstream plastic products is relatively large, and that to the U.S. takes a large proportion. However, the trade friction has been going on for more than a year, and most of the negative effects have been digested, with limited long-term or significant suppression. Therefore, the PP price is more dependent on fundamental changes.

Among the total demand for China’s downstream plastic products, the export of those products took a large proportion. Therein, the export volume of plastic products to the U.S. occupied 36% of the total. Accordingly, the tariff will be bound to suppress the export of plastic products in the short term. However, the trade war has lasted for more than a year, while the export of plastic products in 2019 increased from the same period of 2018. The total export volume in from January to June 2019 increased by above 10% Y-O-Y. In addition, the RMB exchange rate broke through 7, shifting the pressure brought by the increase in tariff.

According to SCI, the PP resources imported from the U.S. from 2015 to 2019 (January-June) accounted for 1.87%, 1.67%, 3.02%, 1.13% and 0.59% respectively of total. China mainly imported PP from South Korea, Saudi Arabia and Singapore. The imports from the U.S. took a small proportion. Thus, if China stops importing PP from the U.S., China can also realize self-sufficiency in PP supply.

From the perspective of the PP price changes, the fundamentals still dominated the market. At present, the PP futures prices are in the process of falling, but the spot PP price still keeps relatively firm, and their price spread rises to RMB 600/mt. SCI predicts that it will be hard for PP prices to drop obviously in September.

In terms of demand, the inventory at PP producers remained in a downtrend recently. But we also need to pay attention to a few points as follows. On the one hand, high profits make the short-run PP price in a high valuation state, which means that the price will suffer a sharp decrease. On the other hand, the transaction price of imported PP has declined to around $980/mt. The import window has been opened, which squeezes the domestic PP supply.

.......
More detailed information, please click "Read more".