Will PP Demand Bulge amid Peak-Slack Seasons Intersection?
Highlights: PP market prices inched lower in August. The downstream demand didn’t resurge noticeably at the end of August which met an intersection of demand peak season and slack season. Will PP prices stabilize and bulge? Will the demand revive as expected in September and October? SCI analyzes price drivers in detail.
China’s PP prices trended downwards in August. Taking East China as an example, PP raffia market prices averaged RMB 7,997.50/mt in August, which fell by 2.44% M-O-M and 5.78% Y-O-Y.
PP Prices Recorded a Two-Year Low
Prices fluctuated downwards in the month. Taking raffia-grade PP in Yuyao market as an example, the highest price was RMB 8,175/mt in early August, while the lowest price was RMB 7,875/mt in H2 August, with price spread of RMB 300/mt. As seen from the prices in recent years, PP prices in August 2022 have reached the two-year low level.
Over the past years, PP prices used to warm up at the end of August or beginning of September. However, the prices remained low this year, mainly due to the insipid demand, despite snug supply.
Unsmooth Logistics & High Temperatures Cooled Demand Down
PP downstream industries saw declines in operating rates in August, and the overall operating rate lingered at lows.
In August, demand for PP from major downstream industries was still lackluster. In BOPP industry, operating rates shed 6.77% because of limited orders from end-users, and BOPP companies maintained just-needed procurement of PP. Plastic woven companies continued to curtail operating rates by 1.25% because of high temperature and no improvement in sales. Besides, they faced high operational pressure with slim profits because of severe product homogenization, even though falling PP prices reduced plastic woven production costs.
For injection product companies, they raised operating rates by 0.5% due to the improved orders from modification field, especially automobile modification and storage battery shells. Automobile output and sales advanced with economy stability policy coming into effect, but its demand resilience was limited as a kind of durable consumer good.
Aug 2022 Policies Related to Orderly Power Consumption in Various Regions
In addition to being in the slack season of demand, poor logistics in some regions also had certain constraints on demand, and a series of chain reactions brought by high temperatures had a significant impact on downstream companies in some regions. Therefore, got hammered by lackluster demand, poor logistics and high temperatures, some companies suspended production or staggered peak production, which further dragged down the downstream operating rate. There is still no sign of pre-peak season stocking at present.
Export Arbitrage Window Kept Closed
Affected by sluggish overseas demand and restarting of Southeast Asian units, foreign producers faced increasing inventory pressure. International PP prices declined a lot, which led to a closed arbitrage window in China’s PP export market.
Export prices stayed relatively high, although export freights dropped. Deals didn’t improve with the export arbitrage window closed. As for finished products in China, their production and delivery were restricted in some regions, so their orders’ delivery to foreign clients was delayed. That caused a decrease in future orders. Generally, the export demand this year performed weaker than previous years.
In September, China’s PP market prices are estimated to inch down at first but then rally with demand improvement. Mixed crude oil prices will exert limited cost support for PP prices. SCI predicts that PP supply will soar in September with a capacity release, limited fresh maintenance and restart of stopped units. In October and November, PP supply will probably head up gradually due to many capacity expansion plans and gradually decreasing maintenance. PP demand will probably warm up in September with downstream companies uplifting operating rates. At present, downstream companies maintain relatively low operating rates. They are supposed to raise operating rates as the weather will cool down gradually and consumption of home appliances, automobiles and daily necessities in schools will increase. Meanwhile, most of the downstream companies have low inventories of feedstock at present. Their rigid demand and speculation demand for PP are likely to improve in September. PP demand is reckoned to stay firm in October amid demand peak season, but it may soften in November.
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