Propylene Price Bottom and Peak Coexist in April
Lead: In April, the PP price was the main factor affecting the propylene price, and propylene market prices hit the bottom level and also reached the peak level of the year in April. In the future, as the price bubbles of various products gradually burst, prices of propylene and its related products will return to a reasonable level.
The public health events at home and abroad led to an increase in the demand for masks and other related epidemic prevention materials. The PP fiber demand surged due to the application in mask production, and a large number of mask producers urgently put into production. Thus, the supply and demand were imbalanced in the short time, driving PP market prices to rise. As the main downstream product of propylene, PP became the main driver for the increase in mainstream prices of propylene in April.
As can be seen from the chart above, due to the sharp drop in the international crude oil prices in March, the cost side had bearish impact on propylene market prices. Besides, the decline in the cost of oil refining stimulated the operating rate of the propylene industry, causing the propylene supply to increase greatly. Therefore, mainstream prices of propylene fluctuated downwards. The propylene price in Shandong decreased to RMB 5,100/mt in early April. Since then, the crude oil and PP futures price trends diverged, and the influence on the propylene market from the cost side weakened. On the contrary, the PP price rose rapidly, having an increased impact on the propylene market. On April 11 and 12, the propylene market price in Shandong climbed rapidly with a range of RMB 1,000 /mt and reached a high level of RMB 8,000/mt of the year. Affected by the market speculation atmosphere, prices of propylene and its related upstream and downstream products also mounted up.
A sharp rise in prices within a short time was bound to face the risk of a sharp fall. The surge in propylene prices forced prices of some downstream products to follow the uptrend, but the end demand did not increase, so many products experienced price bubbles. The market contradiction was intensified, and players’ bearish sentiment became stronger. Many downstream producers shut down the units or reduced the output, and sales at propylene producers were hindered, so propylene offers fell rapidly. Propylene prices dropped, but the change in prices of downstream products was lagging, so profits at downstream producers widened. Downstream producers bought propylene on a need-to basis, supporting propylene market prices. On April 17, propylene market prices in Shandong fell back to RMB 5,850-5,900/mt and began to stabilize.
How will the propylene market change in the future?
At present, PP futures prices decline, and PP market prices are at a period of the great drop. The price spread between spot PP powder and propylene gradually narrows, and the profits continuously shrink, so the support to the propylene market from the PP market is gradually decreasing. With the price of U.S. crude oil futures hitting a negative value, players focus on the cost again.
In May, crude oil market prices are expected to bottom out. Although the rebound will be relatively weak, almost all bearish impacts have appeared, so any bullish factor will push up the crude oil price in the future. More output reduction of crude oil is passive. In particular, the amount of working crude oil drills and crude oil output in the U.S. decline dramatically, and Saudi Arabia and Russia are also implementing the output reduction. Thus, the supply of crude oil will obviously decrease. In addition, next month, the European economy will restart, and the demand will rise. Therefore, crude oil prices will stabilize at lows and start to rebound slowly in the future, which will give strengthened support to the propylene market.
At present, low cost still supports the operating rates at independent refineries, and the overall supply volume of propylene is sufficient. Although propylene prices drop sharply, they do not fell back to the level before price increase. Compared with low-priced crude oil, propylene prices are significantly higher, so there is much room for them falling. In terms of the end industries, global public health events will suppress export orders in Q2, and the overall end demand will be relatively sluggish, so the inventory of the industry chain will be consumed slowly. Currently, players continue to be cautious to operate. In the future, prices of downstream products will decrease, and it will be difficult for downstream producers to keep the profits, so downstream demand will give thin support to the propylene market.
On the whole, prices of propylene and its related products will return to a normal level, and it will be a high probability event that the prices will fall back to the level of the end of March and the beginning of April. Also, the market influencing factors will also return to the fundamentals.
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