PP Demand Stimulated Temporarily
Highlights: At the end of May, PP market prices advanced because of macroeconomic measures and logistics improvements. Market players had held a bullish approach to the June market. But the expectation of demand recovery wasn’t achieved in June.
China’s PP market prices grew at first but then descended in June. Improved macroeconomy pushed up the PP futures prices, which also brightened the spot market. Participants were more active in operating. Demand revived after the transport among regions recovered. Supply was not ample because of intensive maintenance and smooth inventory consumption at local producers. Thus, PP supply-demand fundamentals improved, which buoyed PP prices to rise. But after PP prices went up, downstream enterprises showed resistance to high-priced feedstock and curtailed procurement, causing softened dealings. PP prices have weakened gradually since June 10, but the downward range as of end-June was narrower than the upward range in early June. The average price of raffia-grade PP was RMB 8,727.62/mt in East China, up RMB 37.62/mt M-O-M.
PP Prices Faced Drops After Increments in June.
At the beginning of June, PP prices extended gains from end-May. Market players expected that market demand would be strengthened up stimulated by the State Council’s further deployment of a package of measures to stabilize the economy and the improvement in the overall logistics operation in some regions. At the same time, the international oil prices rose remarkably to the highest price over the past 13 weeks and even broke through $120/mt, as the U.S. strategic oil reserve declined to a historic low and gasoline demand perked up. That provided strong support for the PP market from the cost side, and PP prices reached a monthly high of RMB 8990/mt on June 9. Then, the overall commodity market trading atmosphere was insipid because the Fed announced the largest interest rate hike in the past 30 years to cope with inflation, aggravating the bearish sentiment of market players. Crude oil futures prices fell to the lowest level in two weeks, weakening the cost support for PP prices. At the same time, the demand for PP performed more weakly than expected. In total, the PP market price entered a downward channel. On June 23, PP prices touched the lowest level in the month, falling by RMB 300/mt or 3.39% from the beginning of this month. But downstream enterprises began to stock up after PP prices went down, and producers and traders saw favorable inventory consumption. PP prices stabilized and then moved sideways.
Demand Revived Temporarily with Strategy Stimulus
In June, PP consumption in downstream industries improved limitedly. BOPP enterprises uplifted their operating rates in June amid favorable consumption, but orders were not concentrated and dealt on rigid demand. Plastic woven enterprises maintained low operating rates with limited orders, lowered prices of finished products, as well as decreased profits. Profit losses of plastic woven bags were above RMB 300/mt, some enterprises said. Besides, sluggish overseas demand also undermined the exports of plastic woven bags. Small-sized homo injection product enterprises had unsteady production, facing narrow profits and insufficient new orders. Several large-sized copo injection product enterprises increased operating rates by 8%-10% with automobile production restarted. In July, demand will not improve effectively amid the demand slack season.
Falling Output Eased PP Supply Pressure
The output loss because of maintenance and operating rate reduction was assessed at around 409.7kt in June, down 11kt from last month. Some previously stopped units resumed production, but lots of units were shut down accidentally in H2 June. It is predicted that the output loss of PP will decrease in July with fewer turnarounds, and the overall supply of PP is likely to inch up. China’s PP output was 2,410.4kt in June 2022, down 4.00% M-O-M but up 4.52% Y-O-Y. As of June, China’s PP output was 1,481.23kt in 2022, up 6.54% Y-O-Y. The overall June operating rate of PP units was 82.18% in China, dropping by 0.66% M-O-M and down 3.77% Y-O-Y. Although Weifang Shufukang New Material Technology and Tianjin Bohai Chemical Industry put a total of 600kt/a units into use in June, it needs time for their capacity to release completely. That alleviated the market supply pressure.
Market Supposed to Inch Lower
Crude oil prices are predicted to fluctuate widely, but its mainstream prices will drop, cutting the cost support to PP prices. PP supply is projected to edge up in July because of capacity expansion during June and July, despite relatively intensive maintenance. The demand will probably perform weakly. Soft fundamentals and reduced cost support will dampen PP prices. However, concentrated maintenance and temporary demand improvement in H2 July will underpin PP prices, so PP prices will be range-bound after drops. SCI predicts that PP market prices will register a downtick and then trend sideways in July.
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