Production Adjustment Supposed to Buoy PP Price
Preface: PP (polypropylene) prices headed down recently in China, subdued by falling feedstock cost and soft fundamentals. However, many local producers adjusted their operating rates, and the supply-demand fundamentals were supposed to change in the short run.
PP Prices on a Downtrend with Feedstock Price Dropping
China’s PP market prices have begun to fall from highs since mid-March. Taking PP raffia in East China as an example, the price dropped from RMB 9,500/mt on March 9 to RMB 8,650/mt on March 21, with a decrease of RMB 850/mt or 8.95%.
The major reason for the PP price decrease was the drop in crude oil values. Crude oil prices lost ground from March 8. Therein, Brent prices fell by 23.43% from $127.98/bbl to $98/bbl. The cost from crude oil-based PP production declined from RMB 11,000/mt to RMB 8,900/mt within 10 days. The changes in crude oil values influenced the market sentiment and the futures market noticeably. Besides, soft fundamentals also put a dampener on PP prices.
Insipid Demand Causing Inventory Accumulation
In March, downstream users’ performance in procurement and stockpile was very rational whether PP prices went up or went down. There was a lack of intensive procurement. Slim quantities of purchases led to heavier supply pressure on sellers, which aggravated the weak market. According to SCI’s research, operating rates in main downstream industries of PP kept largely stable in the week ended March 18. At BOPP, plastic woven and injection product companies, operating rates mostly hovered around 60%. But mixed price trends of PP compounded market unease, so downstream companies presented limited appetites in stockpiling. As a result, PP inventories were mostly accumulated at producers or traders.
As for synthetic resin inventory at producers, it stood at 1,000kt during the week ended March 18, indicating that producer inventory pressure was high. The producers intended to promote sales by curtailing offers, but high feedstock costs constrained the operation. Thus, some producers chose to reduce operating rates to ease the inventory pressure.
For PP inventory during the week ended March 18, that at producers, traders and ports all went up. PP output fell by 5.64% W-O-W with continuously lowered operating rates. The downstream demand was lackluster. Downstream enterprises held a cautious stance about stocking up as they had deficient orders and the feedstock market weakened. Thus, the producer inventory ramped up.
PP port inventory edged up this week with active export business. Arrivals of import cargoes remained largely steady this week. Crude oil price and PP price headed down, even though the futures price rallied near the weekend. Deals of import cargoes were mediocre. Besides, the export business kept active. Generally, PP port inventory climbed.
PP inventory at sample traders mounted up this week because of sparse deals. Local producers whittled down offers amid heavier inventory pressure, and traders also cut offers to promote sales. Downstream users mostly procured low-priced PP to cover the rigid demand.
PP Fundamentals Expected to Improve with Production Adjustment
Recently, there were increasing units undergoing maintenance or running at reduced operating rates. The weekly operating rate of PP units was 82.29% last week, which decreased by 4.92% W-O-W, as a lot of maintenance arrangements were newly added this week and some units were operated at lowered capacity.
……
All information provided by SCI is for reference only,which shall not be reproduced without permission.
Please click "Read more" for the full article.
