China PP Unit OR Supposed to Ratchet Up on Improved Profits
Preface: China’s PP producers have begun to face decreasing or even negative profits since 2021, which dampened the unit operating rate. In 2023, producers were more willing to whittle down operating rates given supply increases and demand decreases. At present, some producers plan to lift operating rate (OR) given improved profits, suggesting that PP supply pressure may mount up in the future.
Producer profits have recovered
In recent years, the gross profits have been severely negative, and profit loss has become normalized. Especially in 2022, the average price of PP began to slip, but feedstock prices stayed high, leading to serious profit losses.
PP production profits partly improved. In June, PP production profits via various feedstock sources grew to a certain extent. Therein, coal-based, PDH-based and outsourced propylene-based PP production profits increased a lot, and PDH-based ones basically turned positive. Crude oil-based PP production profits still performed poorly, mainly as crude oil spiraled upwards, but PP prices rose limitedly.
Operating Rates Likely to Climb on Improved Profits
Negative profits, continuous capacity expansions and limited demand improvement made producers more willing to cut back operating rates. The overall operating rate remained low in 2023 and recorded a five-year low at 77.68% in May.
The decline in the operating rate of PP units has reduced the impact of capacity release to a certain extent, which has increased the support from the supply side to the market. However, the profitability of some producers is recovering at present, which enhances the expectation of an operating rate rise.
Enhanced Operating Rates and Newly Added Capacity
H2, 2023 China’s Newly Added PP Units
China’s PP supply is projected to mount up gradually. The unit maintenance may decrease in the future, as the intensive maintenance has appeared during the Spring Festival holiday in H1, 2023, and improved profits of some producers may underpin their production initiative. In H2, 2023, the output loss caused by unit maintenance is supposed to plunge.
The 300kt/a unit at Sinopec Anqing Petrochemical and 200kt/a unit at Shandong Chambroad Petrochemicals have been put into use and run normally at present. Considering that newly added capacity was 2,600kt/a in H1, 2023 and there will be less maintenance and continuous capacity expansion, SCI predicts that China’s PP supply pressure will ramp up gradually in the future.
PP Demand Hardly to Perk Up Notably
In the second half of the year, the PP demand peak may occur in September and October, supported by automobile and home appliance sales promotion during holidays and more sales of students’ daily necessities after the holiday.
In H1, 2023, in order to promote the consumption of home appliances, automobiles, etc., different consumption promotion policies have emerged in different places. The support from related policies is expected to be limited in H2, 2023. Besides, China’s PP export volume may not improve notably, as overseas economic improvement is expected to be limited in the near term.
From the perspective of the PP downstream operating rates, they are likely to inch up on the back of passable orders for daily necessities from August to September. That is expected to strengthen the support for PP prices.
Generally, extensive unit maintenance in H1, 2023 buoyed PP prices, but sluggish demand dragged down PP prices. In H2, 2023, PP producers may show less interest in reducing operating rates initiatively given improved profits. Moreover, the expectation for unit autumn maintenance ratchets down, and PP capacity will continue expanding, so the overall PP supply pressure may mount up. In terms of demand, the positive effects brought by the demand peak season between September and October have been released a little in H1, 2023, so their release may be limited in H2, 2023. In other words, PP prices will get support from the demand side in H2, 2023 due to the traditional demand peak season, but that support may be limited. Hence, it is predicted that China’s PP market prices may face downside pressure in H2, 2023.
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