PP: Apr Rising Supply and Limited Demand to Pressure Prices
Preface: China’s PP market prices fluctuated downwards in March, impaired by falling feedstock prices and soft supply-demand fundamentals. PP supply ramped up amid capacity expansion, but the downstream demand improvement was softer than expected. PP prices are supposed to linger at lows in the short run, as the supply pressure may be unabated and the demand may not brighten remarkably.
PP prices to trend downwards amid weak balance between supply and demand in March
China’s PP market prices remained in a downtrend in March. As of March 23, the closing price of raffia-grade PP was RMB 7,630/mt, dropping by RMB 145/mt from RMB 7,775/mt in end-February, and the average price was RMB 7,704.17/mt, falling by RMB 100.58/mt or 1.29% from February monthly average price.
PP prices lost ground in March, dampened by softer costs and weak fundamentals. Crude oil and propane prices registered a downtick, cutting the cost support for PP prices. Besides, the PP demand improvement was weaker than expected this month, as downstream plants faced marginal profits. But the supply of PP increased with a capacity release. Therefore, PP prices underperformed. However, the PP producer inventory was not high, limiting the downward range of PP prices.
PP supply mounted up gradually with fresh capacity, despite unit maintenance
H1, 2023 China PP Capacity Expansion
In March, capacity expansion brought higher PP supply pressure. As of end-March 2023, new units at PetroChina Guangdong Petrochemical, Sinopec Hainan Refining & Chemical, Sinochem Hongrun Petrochemical and Shandong Chambroad Petrochemicals were put into production smoothly, with new capacity of 1,850kt/a. Therein, the newly added PP capacity was 850kt/a in March. New units ran smoothly and released output steadily after coming on stream. SCI predicts that PP supply pressure will increase gradually in March due to capacity expansions.
There were limited units newly undergoing maintenance in March, and a lot of closed units resumed production. Thus, the output loss caused by maintenance declined gradually. Capacity release and maintenance decrease promoted PP output to increase steadily, which put a dampener on PP prices in March.
In April, it is expected that there will be more arrangements for maintenance, but Shandong Chambroad Petrochemicals plan to put its second line into operation. Besides, units that were put into use in Q1, 2023 may run steadily in April. Above all, SCI estimates that PP supply pressure will not decrease.
PP downstream operating rates improved limitedly in March, suggesting mediocre demand for PP.
At the end of February, the operating rates at most PP downstream enterprises have returned to normal levels. Later, downstream operating rates in March achieved a limited month-on-month improvement but were lower than those in the same period of previous years. According to SCI’s research, the demand for industrial products improved limitedly, although the demand for fast-moving consumer goods such as food packaging and express packaging recovered quickly. Most downstream enterprises reported insufficient new orders and high finished product inventory. In March, downstream enterprises enhanced operating rates narrowly and showed soft enthusiasm for feedstock procurement. Specifically, operating rates at BOPP enterprises dipped, while those at plastic woven and injection enterprises remained largely stable. The downstream demand for PP is unlikely to increase notably in the short run. Besides, PP prices may be pressured because downstream enterprises resisted high-priced feedstock given low profits. In Q2, the downstream demand for PP may partly soften.
Generally, China’s PP prices performed weakly in March amid lower costs and soft fundamentals. In April, PP production profits may remain negative, which will buoy PP prices, but weak crude oil and propane prices will harm PP prices. For fundamentals, PP supply may still be ample, while the downstream rigid demand may keep immobile. But the demand may soften after H2 April, hitting the PP market price.
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