Q2, 2023 Soft Fundamentals Pressuring PP Prices
SCI predicts that the soft PP market will hardly improve in Q2, 2023, and its mainstream prices may continue to dip. PP prices may get cost support as feedstock prices may remain firm, but they may be hampered by imbalanced fundamentals. PP market may face certain supply pressure because of less maintenance and newly added capacity. However, the demand for PP may turn softer with the temperature rising. Thus, the fundamentals are likely to perform poorly, putting a dampener on PP prices.
Extensive maintenance may offset some pressure caused by capacity expansions, but supply pressure may be unabated.
Q2, 2023 China PP Capacity Expansion Plans
SCI reckons that newly added capacity in Q2 may be 1,350kt/a, lower than that in Q1. In terms of production technology, PDH-based PP capacity may take a majority, so it is worth focusing on the impact of propane prices on PP supply. In terms of region, PP supply in South China will continue to increase, which may accelerate the adjustment in supply regional structure and affect regional price spread.
Q2, 2023 China PP Unit Maintenance Plans
Remarks: RS = restart, SD = shutdown
Methodology: The output loss above refers to the affected output due to maintenance at producers during the week with a sample coverage rate of 100%. It is calculated via multiplying daily output by maintenance days.
In Q2, 2023, it is predicted that the output loss caused by maintenance will be around 5,730kt. Therein, about 17 producers will probably arrange maintenance, such as Shenhua Ningxia Coal Industry, Sinopec Zhenhai Refining & Chemical and PetroChina Lanzhou Petrochemical, and 25 production lines may be involved. Thus, PP maintenance may still encounter a peak in Q2. More producers have arranged maintenance since March under high-cost pressure, and the PP industry entered the maintenance peak season later with the downstream demand slack season coming. According to the research, the output loss caused by maintenance is assessed to be 348.9kt in April, up 0.81% M-O-M. Thus, the supply pressure may be limited. However, PP supply is likely to rebound successively with PDH-based PP production profits improving and new units put into use.
Demand for PP is supposed to weaken gradually in Q2, 2023.
The PP demand will probably perform weakly at home and abroad in Q2. In terms of overseas demand, favorable export orders from March to April of previous years boomed the consumption of Chinese-made PP, but export orders are sluggish at present and may not improve in the short run, which will put a dampener on the demand for China-origin PP. As for the demand in China, its improvement was softer than expected in Q1. Downstream plants faced inventory accumulation of finished products and falling profits at the end of Q1, so they were wary about purchasing PP. SCI predicts that hand-to-mouth stockpiles for PP will be normalized in Q2. Downstream plants will probably whittle down operating rates in Q2, especially in June when the weather gets hotter. Generally, the downstream demand for PP may turn soft gradually in Q2, 2023.
Feedstock prices ramped up amidst output cuts, lending stronger cost support to PP prices.
In Q2, 2023, crude oil and propane prices are expected to grow, while steam coal prices may fluctuate downwards slightly. For PP producers, the overall production cost will probably stay high. But PP demand will enter the slack season step by step, and PP prices may mainly lose ground. In conclusion, PP production profits are expected to remain negative in Q2.
In Q1, PP prices were mostly influenced by supply-demand fundamentals. Prices showed a downturn with an optimistic outlook and weak performance of demand in a constant struggle, as well as capacity release, despite intensive maintenance in the PP industry. In Q2, it is predicted that supply-demand fundamentals will still be the major factor affecting PP price change. High costs are supposed to continue in Q2, but insipid market demand and supply growth may impair PP market prices a lot. Generally, SCI estimates that China’s PP mainstream prices will register a drop in Q2, 2023.
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