Sep PP Production Profit Outlook by Different Processes
Preface: Polypropylene (PP) producers encountered different profits based on various feedstock sources. PP prices mainly moved downwards in August, but crude oil-based PP, PDH and outsourced propylene-based PP producers enjoyed brightened profits because prices of crude oil and propane declined at a quicker rate than PP prices. However, coal-based PP and outsourced methanol-based PP producers confronted severer profit losses.
Crude Oil-to-PP Production Profit Analysis and Forecast
As of August 29, the monthly average gross profit at crude oil-to-PP producers increased by 18.18% or RMB 311/mt M-O-M to RMB -1,400/mt. Crude oil-based PP production profits increased this month with production costs decreasing within a wider range than PP prices. Crude oil prices declined by 6.97% and averaged $97.36/bbl in the month, which indicated that crude oil-based PP production cost declined by 4.94%. Crude oil-based PP EXW prices decreased by 2.16%.
In September, it is estimated that international crude oil prices will continue to fluctuate within a wide range. There will probably be downward pressure on the international crude oil market, and market participants need to pay attention to the crude oil output cut in Saudi Arabia. Given the economic cycle and with the approach of winter, it is predicted that international crude oil prices will fluctuate within a wide range. In October and November, market participants focus on the tug of war between Saudi Arabia and one Middle Eastern country. On the whole, the international crude oil price is likely to fluctuate frequently, and the mainstream price will probably be largely stable. Crude oil-based PP production profits are likely to improve slightly, which will range from RMB -1,800/mt to RMB -1,100/mt in September.
Coal-to-PP Production Profit Analysis and Forecast
As of August 29, the monthly average gross profit at coal-to-PP producers was RMB -812/mt, down 6.42% or RMB 49/mt M-O-M. Coal-based PP production profits dropped this month with production costs decreasing within a narrower range than PP prices. Steam coal prices edged lower, reflecting that coal-based PP production costs declined by RMB 227/mt or 2.59%. Coal-based PP prices decreased by 3.45%.
In September, China’s domestic mainstream coal mines will probably experience a high long-contract delivery rate, so the overall supply is more secure. But some areas’ production, marketing and transportation recovery will bring uncertain effects. In September, the domestic high-temperature weather will end, reflecting decreasing residential electricity load, but some power plants will release winter storage demand successively. Demand from chemical, steel and other non-power industries is expected to improve. Coal-based PP prices are supposed to edge up amid expectations that coal prices will linger at highs, so SCI holds that coal-to-PP production profits will widen to RMB (-750) - (-400)/mt.
Outsourced Methanol-to-PP Production Profit Analysis and Forecast
In August, China’s methanol average price dropped by RMB 29/mt or 1.28% M-O-M, resulting in a decline of 1.06% in the cost from methanol-to-PP production, but the methanol-to-PP average price decreased more by 3.42%. Thus, the profits at outsourced methanol-to-PP producers narrowed, which averaged RMB -279/mt, down RMB 186/mt or 200% M-O-M.
Recently, the methanol market has been fluctuating amid multiple factors, such as rising feedstock prices, expected supply reduction and shutdown of MTO units. Market players are cautious about operating, and the overall sales remain slow. It still needs time for the market to accept high prices, and it is predicted that the coastal methanol market prices may fluctuate in the range of RMB 2,500-2,600/mt in September. Inland methanol prices may edge up in H1 September but then trend sideways after mid-September amid the dearth of upward momentum. PP prices are likely to grow marginally after falling. Therefore, outsourced methanol-to-PP production profits are supposed to shrink to RMB (-300) - 50/mt.
PDH-based PP Production Profit Analysis and Forecast
Profits from PDH-based PP production saw a draw in August, and the profits averaged RMB -722/mt, up RMB 159/mt or 18.05% M-O-M. Propane import prices averaged $697/mt in the month, falling by $51/mt or 6.82% M-O-M and leaving a downtick of 3.87% in PDH-based PP production cost. But PDH-based PP prices declined less by 2.86% M-O-M, so the profits from PDH-based PP production widened.
In September, China’s propane market prices are expected to mount up tentatively and slightly. Propane supply is supposed to ratchet up, but its fuel-used demand will probably remain strong. Deficient profits constrain the propane demand from chemical fields, but that demand will stabilize and rebound if newly added projects are put into use. PDH-based PP prices will mainly rally after drops, but its upward range was smaller than PDH prices. As a result, it is expected that the profit of PDH-based PP producers will diminish to RMB (-870) - (-600)/mt.
Outsourced Propylene-to-PP Production Profit Analysis and Forecast
Outsourced propylene-to-PP production profits rose by RMB 88/mt or 68.75% M-O-M to RMB -40/mt. Propylene prices averaged RMB 7,077/mt in August, down 4.29% M-O-M, leading outsourced propylene-based PP production costs to decrease by 3.87%. Comparatively, PP prices dropped less by 2.86% from last month, so the producers’ profits were on a rise.
The release of newly added propylene capacity was delayed in August. Therefore, it is expected that the bearish influence of newly added capacity on the propylene supply will increase in September. Moreover, the propylene market is still under oversupply. Therefore, the propylene supply pressure will not decrease in September. However, the operating rates at Shandong independent refineries may slide in September due to some factors, which may ease the sales pressure on propylene producers. On the demand side, the traditional demand peak season may drive the end demand to rise. Accordingly, propylene prices are likely to trend sideways at a low level in September, and the price decrease may slow down. PP mainstream prices are likely to show an uptick, so outsourced propylene-to-PP production profits are likely to climb in September, which will range from RMB -100/mt to RMB 50/mt.
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