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How will PP Market Go in the Short Run?
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How will PP Market Go in the Short Run?

How will PP Market Go in the Short Run? SCI99
2020-02-20
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How will PP Market Go in the Short Run?
Jan Market Overview
In January, China’s PP market prices continued fluctuating downwards. The main reasons were as follows: First, the continuously increased supply and the news about capacity release weighed down the market sentiment. Meanwhile, the domestic PP market was also impacted by low-priced imported resources. Second, near the Spring Festival holiday, the trading activities softened gradually. Third, PP producers cut their offers in order to reduce inventory pressure, failing to underpin spot PP market prices.
Taking raffia-grade PP in Yuyao market as an example, the average price of raffia-grade PP was RMB 7,503.85/mt in East China, down 5.03% M-O-M and down 17.71% Y-O-Y. Besides, copo PP prices averaged RMB 8,226.92/mt, down 6.51% M-O-M and down 14.92% Y-O-Y.
PP Inventory
According to SCI, China’s PP inventory on February 7, 2020 increased by 24.22% from January 23, 2019. Therein, the PP inventory at major PP producers and trade companies increased, while that at ports remained flat. 
Remarks: Total PP inventory involves PP inventory at major producers, PP inventory at ports and PP inventory at trading companies.
PP Supply and Demand Forecast
On the supply side, in February 2020, China’s PP output loss volume caused by the maintenance will be about 418.6kt, up 257.68% from 117kt in January, and the PP output is predicted to be 1,722.3kt. The output loss caused by the maintenance was around 117kt in January 2020, down 31.17% from 170kt in December 2019. It was because that most PP units resumed production in January 2020, and most PP producers ran units at high operating rates. In February 2020, the running date of newly added first production line at Zhejiang Petrochemical and the first production line at Hengli Petrochemical will be included in the statistics, so the output loss will increase a lot.
On the demand side, most downstream enterprises will restart units after February 9, so the demand for PP will recover slowly. It is hard to improve the imbalance between PP supply and demand at present.
The average operating rate at plastic weaving enterprises decreased in January 2020, and that at BOPP producers decreased to 13%. Downstream enterprises took a holiday successively after mid-January, and they were predicted to resume production after February 10. In some areas, downstream enterprises will resume production on February 17 or in early March.
PP Price Forecast
The international crude oil prices are predicted to go up in February. With the improvement in downstream demand and the further crude oil output reduction, it is estimated that the international crude oil prices will bottom out. However, the international crude oil prices may further drop, if the improvement in the downstream demand is insufficient. Besides, the PP futures prices have decreased to limit down. The inventory of PP has been accumulated a lot, while it needs time for downstream production to recover. SCI predicts that the PP futures prices will hover at low levels at RMB 6,750-7,050/mt in the short run.
Generally speaking, the PP supply is expected be ample in February, but the demand for PP fiber and transparent materials increases notably. Moreover, some PP producers will continue reducing their operating rates, which will ease the supply pressure. The supply-demand fundamentals will not improve obviously in the short run. SCI predicts that PP market prices will move downwards in the near term. Taking PP raffia materials in East China as an example, the prices are expected to hover at RMB 6,500-7,400/mt in February 2020. 
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