【SCI View】PP Supply and Demand Analysis After Spring Festival

SCI99

2020-02-06

PP Supply and Demand Analysis After SpringFestival

Highlights

After the Spring Festival holiday, market players focus on the circulation of PP resources. This article shows the PP supply and demand patterns after the holiday, via the research on upstream and downstream enterprises and traders.

PP inventories soared due to newly added PP units and the Spring Festival holiday.

During the holiday, except for units in long-term shutdown and temporary shutdown caused by breakdown, other PP units ran normally. Meanwhile, transactions were suspended during the holiday, and the holiday was extended, so PP inventories at Sinopec and PetroChina increased more quickly.

After the holiday, the PP inventory at Sinopec and PetroChina reached 530kt, 156kt higher than the average inventory level from 2015 to 2019. Besides, the PP inventory at coal chemical enterprises and local enterprises also rose notably.

Transport and demand have not recovered, and some PP producers reduce their operating rates.

Under normal trading conditions, the warehouse capacity of PP producers can be mostly consumed for 7-10 days (some coal chemical enterprises and local enterprises have relatively large warehouse capacity). If the supply of goods cannot be transferred to traders and downstream users in a timely manner, the PP producers’ inventory will gradually rise, causing imbalanced supply-demand fundamentals.

In the case that downstream demand has not been recovered, the inventory pressure of PP producers is still relatively large. Sinopec and some local enterprises in East China operate mainly based on enterprise warehouses, and the number of remote warehouses is relatively small. But some road transportation is currently limited, so some enterprises have greater pressure on their warehouses.

In order to cope with the current pressure, various enterprises actively take measures in accordance with their actual conditions. First, they fully mobilize transportation to maximize the transportation and storage capacity of railways, sea freight and off-site warehouses. Second, they actively seek transit warehouses around the enterprise warehouse to ease the pressure. Third some producers appropriately reduce operating rates. Last, they actively provide fiber materials and transparent materials to non-woven fabric enterprises and medical supplies enterprises through existing channels.

Regarding the load reduction of operating rates, SCI thinks that most of producers intend to maintain 80%-90% of operating rates. Of course, the specific implementation will be determined by reference to inventory and logistics conditions.

Supply structure change

Around the Spring Festival holiday, due to the great demand for masks, protective suits, medical supplies, etc., the demand for polypropylene fiber materials and transparent materials increases. Conditional PP producers actively adjust their production schedules to mass produce fiber and transparent materials. According to SCI’s statistics, during the Spring Festival holiday, more than 20 of the 35 producers involved in the production of fiber materials ensured market supply by coordinating production and increasing output.

By comparing the production data of producers on February 3 and January 23 before the festival, we can also see that the current production of fiber materials and transparent materials is still at a high level. On February 3, the production scheduling rate of fiber materials (the proportion of capacity of enterprises that produce fiber materials compared to the total capacity) was 20.43%, an increase of 10.95% compared with the pre-holiday period, and an increase of nearly 12% from the average point of 2019. On February 3, the production scheduling rate of transparent materials was 6.81%, an increase of 1% from the pre-holiday period and an increase of 3% from the 2019 average point. Correspondingly, we have noticed a significant decrease in the production scheduling rate of injection, film materials, etc.

Therefore, for market participants, while paying attention to the total supply and inventory, it is also necessary to pay attention to the changes in the supply structure under the influence of demand, as well as to evaluate the prices of various varieties based on demand.

Intermediate links in key regions have resumed one after another, amid current soft trading atmosphere.

In North China, East China and South China, many traders have begun the work in home on February. Traders tried to provide quotations, but the overall trading activity was soft. There was also scarce transport volume. At some trade companies, the out-put and in-put of warehouse will recover after February 10, because of limited warehouse workers.

Most of downstream enterprises have not resume production, and it is worth focusing on the consumption of finished products.

According to SCI’s investigation of downstream enterprises in various places, except for non-woven fabrics, masks, medical equipment producers, etc., other major downstream enterprises such as plastic weaving, injection, pipe producers, etc. have not resumed production. The number of BOPP enterprises that maintained production during the Spring Festival is not large, and the current operating rate is about 13%.

It is known that most of the downstream enterprises will resume production successively after February 10, and a few enterprises in some regions will postpone their restarting date to February 17. After the resumption of work, it is unclear whether workers’ issues and transportation restrictions will affect downstream production. In addition, according to SCI, although the downstream enterprises’ inventory of feedstock is not high, the inventory of finished products at some enterprises is relatively high. After the market recovers, whether the finished product inventory can be quickly consumed and then drive the efficient production is also uncertain.

From the current upstream, middle and downstream conditions, SCI predicts that PP supply will exceed demand noticeably. Although downstream enterprises will resume operations in mid-February, the strength of demand recovery and the efficiency of inventory transfer from top to bottom remain to be observed. It may take a relatively long time to balance the upstream and downstream pressure in the later period.

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