PP Downstream Industry OR Recorded Low Amidst Subdued Demand
Preamble: In May, orders could not increase fast enough to keep up with production at PP downstream enterprises, so enterprises represented softer initiative in production and reduced operating rates (OR) of units. Furthermore, the lackluster demand became a hindrance to PP prices. PP has a wide range of downstream applications, involving packaging, medical, agriculture, construction, automobile, home appliances, etc. In other words, it can be said that our daily life is inseparable from PP.
The PP demand in major downstream fields was analyzed as follows:
In May, operating rates in major PP downstream industries saw a dip amid inadequate orders. Downstream sample enterprises faced heavier inventory pressure of semi-finished products, and their profits softened.
The monthly average operating rate at sample plastic woven enterprises was 42.25% in May, down 7.75% M-O-M. In Shandong, for example, large-scale processors ran units at 50% of operating rates, while medium and small-scale ones ran units at 30%-40% of operating rates. Only a few processors cut back operating rates, but the inventory of finished products was on an upswing. Some sample processors indicated that the finished product inventory reached 2 times the normal level. Processors are likely to maintain basic purchases for feedstock in the short run, despite that feedstock inventory is not high.
The average operating rate at sample injection product enterprises dropped by 4.5% M-O-M to 48.25% in May. Orders for MPP pipes and daily necessities were passable. Operating rates at large and medium-sized enterprises were 60%-70%, while those at small-sized enterprises were around 40%. For tray enterprises, they ratcheted down operating rates marginally with fewer orders. Modified product enterprises maintained flat operating rates on immobile orders. The feedstock inventory at injection product enterprises could be consumed for 7-15 days. The enterprises will probably stockpile to cover just-needed demand in the short run.
The monthly average operating rate at sample BOPP enterprises was 53% in April, up 2% M-O-M due to the elimination of backward units. That was 7% lower compared with the same period of 2022. BOPP industry faced slack demand during the month. End users consumed feedstock inventories slowly and merely purchased a slim quantity of BOPP. BOPP production profit was on the brink of loss in early April. Under high operational pressure, most enterprises started the production outage. After the Labor Day holiday, closed units resumed production in succession, and operating rates stabilized in mid-May but then shed in late May. Profits at BOPP enterprises hovered within RMB 200/mt. SCI predicts that BOPP deals may be concluded on a hand-to-mouth basis in the near term amid bearish sentiment.
The downstream demand is projected to be tepid in the short run, but the rigid demand may keep ongoing. Market players hold a bearish stance with the demand dull season drawing near. Facing insufficient orders and finished product inventory accumulation, some downstream enterprises ensure sales by cutting profits at present. The overall operating rate in the downstream industry is likely to be lower compared with the same period last year. Besides, downstream enterprises are wary about stockpiling. The change in downstream industry operating rate shall be focused on, which is a prominent driver for PP price trends.
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