PP Production Profits Assessed to Decline in October
Preface: Polypropylene (PP) producers had negative profits regardless of any production technologies. But crude oil-to-PP production profits brightened with international crude oil prices and propane prices falling and PP prices rising. Therein, profits from producing PDH-based PP improved the most. Comparatively, coal-based PP, outsourced methanol-based PP and outsourced propylene-based PP producers faced severer losses in profits.
Crude Oil-Based PP Production Profit Analysis and Forecast
Crude oil-based PP production profits grew in September with production costs decreasing and PP prices heading up. Gross profits averaged RMB -960/mt in the month, up RMB 440/mt or 31.43% M-O-M. Crude oil prices declined by 6.65% and averaged $90.71/bbl in the month, which indicated that crude oil-based PP production cost shed 3.61%. Crude oil-based PP EXW prices rose by 1.26%.
In October, it is estimated that the international crude oil prices will fluctuate within a narrow range, and market participants need to pay attention to crude oil supply change and the Eastern European market. It is expected that Saudi Arabia may cut crude oil output to underpin the international crude oil prices, and the energy supply in Eastern Europe is likely to influence the international crude oil market. On the whole, international crude oil prices will probably see frequent fluctuations in October. In Q4, 2022, it is predicted that international crude oil prices will gradually rise from low levels, mainly backed by the output cut, high natural gas prices and eased macro pressure. That indicates that the average crude oil-based PP production cost will inch up. However, PP prices are likely to drop after increments. Therefore, the gross profits from producing crude oil-based PP may stay negative, which will range from RMB -1,500/mt to RMB -1,100/mt in October.
Coal-Based PP Production Profit Analysis and Forecast
Coal-based PP production profits dropped in September, as production costs rose within a wider range than PP prices. Gross profits averaged RMB -1,635/mt in the month, down RMB 823/mt or 101.35% M-O-M and down RMB 1,154/mt or 239.92% Y-O-Y. Steam coal prices moved up, reflecting that coal-based PP production cost increased by RMB 10.6/mt or 5.4%. Coal-based PP prices rose less by 1.05%.
In China, coal mine safety production consciousness is stronger, which may constrain the supply increment in October. Moreover, the transport volume is supposed to decline as Datong-Qinhuangdao Line will meet intensive autumn maintenance. However, downstream power plants continue the winter coal reserve work, and non-electric users will continue to release rigid demand, giving wings to the coal demand. SCI reckons that coal prices will remain high possibly in October, but coal-based PP prices are less likely to move up. Therefore, the gross profits from producing coal-based PP will shrink to RMB (-1,900) – (-800)/mt.
Outsourced Methanol-Based PP Production Profit Analysis and Forecast
China’s methanol average price increased by RMB 122/mt or 5.47% M-O-M in September, resulting in an increment of 4.58% in the cost from methanol-based PP production. However, the methanol-to-PP average price registered 1.04% of M-O-M growth in September. Thus, the gross profits at outsourced methanol-based PP producers narrowed, which averaged RMB -565/mt, down RMB 286/mt or 102.51% M-O-M.
SCI estimates that methanol supply in the mainland market will increase with capacity expansion plans in October, while the end demand for methanol will not change noticeably. Thus, mainland methanol prices are likely to perform weakly. The post-National Day holiday stockpiles from downstream users may buoy the methanol prices temporarily. For outsourced methanol-based PP, its prices may ramp up at first but then lose ground, with mainstream prices edging lower. Therefore, outsourced methanol-based PP production profits will probably remain stable and linger around RMB (-700) – (-200)/mt.
PDH-Based PP Production Profit Analysis and Forecast
Profits from PDH-based PP production continued to improve in September, and the profits averaged RMB -559/mt, up RMB 163/mt or 22.58% M-O-M. Propane import prices averaged $679/mt in the month, falling by $18/mt or 2.58% M-O-M and leaving a decrease of 0.37% in PDH-based PP production cost. But PDH-based PP prices advanced by 1.64% M-O-M, so the profits from PDH-based PP production widened.
Downstream users replenish the inventory periodically because of the National Day holiday. The trading atmosphere warms up in October, and propane prices are supposed to rebound. In H2 October, the international situation and bullish outlook for market demand will probably underpin propane prices. For PDH-based PP, its prices are likely to inch lower, so the profit of PDH-based PP producers may diminish to RMB (-850) – (-600)/mt.
Outsourced Propylene-Based PP Production Profit Analysis and Forecast
Outsourced propylene-to-PP production profits declined by RMB 120/mt or 300% M-O-M to RMB -160/mt. Propylene prices averaged RMB 7,323/mt in September, up 3.48% M-O-M, leading outsourced propylene-based PP production costs to jump 3.13%. Comparatively, PP prices grew less by 1.64% from last month, so the producers’ profits headed down.
On the supply side, some newly added propylene capacity will probably be put into use, so the overall propylene supply may increase. However, the propylene inventory at most producers is likely to be relatively low, supporting propylene prices. It is estimated that PP prices will see minor improvements, denting the propylene price increment. Furthermore, prices of most chemical products are likely to rise, so the downstream production profits will probably strengthen, lifting the propylene demand. Besides, some newly added PP, PO and phenolic ketone units may be put into use, lifting the propylene demand.
China’s propylene price is likely to further rise in October. SCI reckons that propylene market prices will average RMB 7,400-7,500/mt and hover at RMB 7,200-7,700/mt in October. From November to December, propylene prices are likely to move downward, with newly added propylene units coming on stream and propylene demand weakening. It is predicted that propylene average prices will be RMB 7,300/mt and RMB 7,000/mt in November and December respectively. Furthermore, PP mainstream prices are likely to show an uptick in October. In conclusion, the outsourced propylene-to-PP production profits are expected to see a draw in September, which will range from RMB -350/mt to RMB -100/mt.
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