May PP Exports Likely to Decline with Profit Squeezed
Foreword
China’s PP supply and demand were both weak recently. PP import and export markets were affected by high feedstock costs, insipid downstream demand and gradually enlarged price spread between China’s domestic PP and imported PP. SCI will analyze the changes in PP (HS code: 39021000) import and export pattern in April.
1. China’s PP import volume dropped as overseas suppliers showed limited enthusiasm for selling goods to China.
After the Spring Festival holiday in 2022, market demand for PP didn’t revive as usual, so China’s PP market performed weakly. Domestic PP and international PP witnessed a gradually increasing price spread. Downstream users had limited acceptance of high-priced import goods. Between January and April 2022, China’s PP import volume decreased by 16.83% Y-O-Y. In the first half of the year, logistics congestion in some overseas regions led to a backlog of goods, which restricted local transportation and blocked the supply chain. As a result, foreign companies raised offers accordingly. However, the situation that domestic prices were in the global depression remained unchanged, so it was difficult for foreign companies to increase their enthusiasm for sales in China. Therefore, China’s PP imports fell year-on-year from January to April 2022.
In April, China’s PP import volume decreased by 16.88% from March and dropped by 16.83% Y-O-Y, which was near the lowest level in February. In April, the U.S. dollar quotation fell slightly less than the depreciation of the RMB, and overseas manufacturers were reluctant to lower their quotations due to production costs. China’s domestic PP and international PP saw a wider price spread. In addition, China’s main ports are congested seriously, resulting in delays in import unloading and customs declaration, lengthening the shipping cycle and increasing freight costs. The overall transaction was weak, so the import volume decreased significantly.
2. The exchange rate of RMB against the U.S. dollar fell further in April.
In terms of export, China’s PP export volume has increased significantly since last year, and the monthly export volume has gradually increased. The export volume from January to April 2022 fell by 20.41% year-on-year. The main reason was that some overseas regions were affected by force majeure in the first quarter of 2021, so the regional supply and demand imbalance was noticeable, and the price increased significantly. In the same period, China’s domestic price was at a global low level, and the expansion of the price difference between the domestic and international goods gave wings to China’s export business. Although with the gradual recovery of overseas units, the price gap between the domestic and international goods has gradually narrowed, and the export volume has returned to the normal range in the second half of 2021. Overall, the total export volume in 2021 soared.
China’s PP export volume was 205.1kt in April 2022, up 53.08% M-O-M. The difference between China’s domestic and foreign supply and demand, combined with the continuous depreciation of the RMB value in the month, widened the price spread between the domestic and foreign prices. The export window was open and profit margins were wide. The high cost of PP has become a normalized factor. Due to factors such as poor domestic logistics and transportation and high inventory of finished products, the overall domestic demand was weak. As a result, the trading atmosphere cooled significantly, and exports became the main way to relieve domestic supply pressure.
3. Overseas demand softens, which will pressure China’s PP export business in the short run.
SCI reckons that China’s PP import and export volume will change in the near term, with firm feedstock costs and improving logistics in some regions. In terms of the import market, China’s PP import volume is supposed to remain flat in May compared with April. Foreign suppliers intend to facilitate sales by cutting profits given sufficient inventories, thus shrinking the price spread between China’s domestic PP and international PP. At the end of May, deals of some low-priced imports were favorable. As for the export market, SCI predicts that China’s PP export volume will decrease in May. In Southeast Asia, PP supply ramped up as some units that underwent maintenance before resumed production successively, but the downstream demand stayed lackluster after Ramadan. Even though holders in China sold a few goods to South America instead of Southeast Asia, overall dealings in China’s PP export market weakened a lot. Besides, the Indian market demand for PP is limited because the rainy season draws near. Since H2 May, China’s PP export costs have mounted up with ocean freights increasing. Therefore, SCI estimates that China’s PP export volume will present an M-O-M decline in May 2022.
All information provided by SCI is for reference only, which shall not be reproduced without permission.
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