Jun PP Production Profit Outlook by Different Feedstock Source
Preface: Polypropylene (PP) producers faced poor profits in May. A lot of producers experienced brightened profits when methanol and steam coal prices dropped. However, crude oil-based PP producers and propylene-based PP producers still had high cost pressure, and their profits continued to be squeezed.
Crude Oil-to-PP Production Profit Analysis and Forecast
As of May 27, the monthly average gross profit at crude oil-to-PP producers decreased by 86.51% or RMB 795/mt M-O-M to RMB -1,714/mt. The cost from crude oil-to-PP production rose by 8.10%, as the monthly average price of crude oil fell by 5.09% to $110.98/bbl, but crude oil-based PP EXW prices dropped by 0.27%.
In June, it is estimated that the international crude oil prices will fluctuate upward. The overall crude oil supply will see a limited increment in the short term, and the demand for crude oil will perform well. Accordingly, the overall crude oil stock will be rational. Moreover, the macro environment will probably exert bullish impacts on the international crude oil market. As a whole, it is predicted that the international crude oil prices will go up in June. However, PP prices are likely to lack enough upward momentum, so crude oil-based PP producers will encounter severer losses in profits, which may hover from RMB -2,400/mt to RMB -1,600/mt.
Coal-to-PP Production Profit Analysis and Forecast
As of May 27, the monthly average gross profit at coal-to-PP producers was RMB 728/mt, up 151.03% or RMB 438/mt M-O-M. The cost from coal-to-PP production declined by 6.36% or RMB 519/mt M-O-M, as steam coal prices extended decreases, but coal-based PP prices fell less by 0.96%.
In June, steam coal output is estimated to continue rising with verification efficiency of coal mine capacity improving. The residential electricity load will increase as the temperature rises after entering June. At the same time, downstream enterprises in some areas will continue to lift operating rates, which will form demand support for steam coal prices. Largely steady supply and demand will lead to mixed trends in steam coal prices. Besides, PP prices will ramp up but then inch lower, so SCI holds that coal-to-PP production profits will widen to RMB 400-900/mt.
Outsourced Methanol-to-PP Production Profit Analysis and Forecast
In May, China’s methanol average price dropped by RMB 156/mt or 6.28% M-O-M, resulting in a decline of 5.33% in the cost from methanol-to-PP production, but the methanol-to-PP average price decreased less by 5.33%. Thus, the profits at outsourced methanol-to-PP producers were enlarged, which averaged RMB 83/mt, up RMB 419/mt or 124.70% M-O-M.
In June, it is predicted that the inland methanol market may keep fluctuating under downward pressure. The overall supply may remain sufficient with fewer unit turnarounds. Although some olefin units have been restarted, traditional downstream demand remains tepid. The market is projected to keep vibrating amid the tug of war between demand and cost. That will cut back the cost pressure on outsourced methanol-based PP producers. PP prices are predicted to head down after rises in June. Therefore, outsourced methanol-to-PP production profits are likely to continue increasing to RMB 350/mt.
PDH-based PP Production Profit Analysis and Forecast
Profits from PDH-based PP production saw a draw in May, and the profits averaged RMB -982/mt, down RMB 155/mt or 18.74% M-O-M. Propane import prices averaged $826/mt in the month, falling by $54/mt or 7.98% M-O-M and leaving a downtick of 0.01% in production cost. As PDH-based PP prices saw a wider downward range than its production costs, the profits from PDH-based PP production diminished.
In June, China’s domestic propane market prices will drop to a certain extent. Participants will be cautious, as it is predicted that CP prices will possibly decline, and the propane industry will enter demand slack season. Moreover, propane supply is expected to grow, so China’s propane prices are likely to decrease. However, the strong industrial demand may restrain the decline of propane prices to a certain extent. In addition, the current ocean freight rate is high, and landed costs of import cargoes will not drop a lot, which will also restrict the downward range of propane prices. In addition, PP prices are assessed to mount up at first and then descend, so it is expected that the profit of PDH-based PP producers will change limitedly and range from RMB -1,100/mt to RMB -850/mt.
Outsourced Propylene-to-PP Production Profit Analysis and Forecast
Outsourced propylene-to-PP production profits went down in May. The monthly average profit was RMB -567/mt, down RMB 152/mt OR 36.63% M-O-M. Propylene prices averaged RMB 8,392/mt in May, down 0.05% M-O-M, leading outsourced propylene-based PP production costs to decrease by 0.04%. Comparatively, PP prices dropped more by 1.74% from last month, so the producers’ profits were squeezed.
In June, there will be sparse maintenance plans at propylene companies, and previously stopped units will resume production successively. Propylene capacity will also continue to release. In conclusion, propane supply will remain in an uptrend in June. But PP prices will not surge, and downstream chemical industries faced certain cost pressure. Demand for propylene is supposed to be mediocre. Outsourced propylene-to-PP production profits are likely to head up in June, which will range from RMB -100/mt to RMB 400/mt.
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