PP Prices to Spiral at a High Due to Downstream Pre-Holiday Stockpiles
Preamble: China’s PP market prices moved within a narrow range recently, supported by firm feedstock prices and snug supply. Approaching the May Day holiday, it is expected that the PP demand will perk up, which will buoy the market price. However, PP mainstream prices are supposed to slide after the holiday with softer support from supply-demand fundamentals.
Pre-holiday stockpiles push up PP prices slightly
China’s PP market prices trended sideways after inching up in April, with high cost, snug supply and limited demand mixed. As of April 25, raffia-grade PP prices hovered around RMB 7,500-7,630/mt, up RMB 40-80/mt from early April. The fluctuation range of prices was RMB 20-30/mt within a week.
Pirce hike in feedstock underpins PP prices strongly.
The recent relatively high fluctuations in PP prices are inseparable from the support on the cost side. In particular, the continued rise in crude oil values has not only strengthened PP cost support but also further boosted market sentiment. Recently, affected by the geopolitical situation, crude oil prices have recorded six consecutive rises. After that, crude oil prices remained at a relatively high level above $85/bbl, although they have fallen back from highs as the geopolitical premium has retreated due to the easing of the situation. Most of the PP producers witnessed negative profits because of high costs and comparatively low PP prices, so they were unwilling to further cut back offers. Currently, the crude oil-based PP production profit was RMB -1,380/mt, the coal-based one was RMB 271/mt, while the PDH-based one was RMB -369/mt.
Snug supply amid intensive maintenance buoys PP market.
In terms of supply, extensive maintenance has started to support PP market prices strongly since the middle of March. The weekly operating rate at PP producers began to drop from 81.42% in early March to 73.48% in mid-April, and the latter one was the lowest level within a year. Operating rates have climbed recently but stayed low at around 75%. It is predicted that the PP market will still get support from concentrated maintenance in the near term.
Pre-holiday purchase from downstream users
Downstream enterprises have maintained a cautious stance about stockpiling, but they are expected to conduct pre-holiday procurement, which will probably back the PP market. Although downstream orders have improved in Q2, 2024 from Q1, they have shrunk compared with the same period last year. There are mainly two reasons. First, China’s domestic demand is relatively weak amid insufficient consumer confidence, and domestic PP consumption growth has slowed down. Second, China’s PP exports move up, but they occupy a small proportion of the total PP consumption in China, so it underpins the overall PP demand limitedly. At present, most domestic downstream enterprises have relatively limited follow-up on new orders. They mostly determine production according to sales, complete production according to orders, and maintain low feedstock inventory. However, downstream enterprises are expected to replenish the inventory before the May Day holiday, suggesting some demand support for PP market prices.
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