China's Polypropylene Prices Rose in Slack Season

In July, the Chinese PP market prices stopped dropping and began to mount up. The PP futures prices increased greatly from the low levels of RMB 7,500/mt to RMB 8,500/mt. After that, the spot PP market prices followed that and increased by around 6%. It was beyond expectation that the PP market prices still rose in the slack season.  

In summer, which was demand off season, the PP futures instead rose strongly. Undoubtedly, that became the main factor to contribute to the rise of spot PP market prices. As the price spread between the PP futures and spot PP market was large, the arbitrage space also became large. Thus, traders who focused on hedging procured PP actively in order to gain more profits. Besides, converters and downstream producers raised purchase volumes as well. Accordingly, petrochemical companies sold PP fluently and quickly, showing lower inventory pressure.

The imbalance between supply and demand will not worsen in the near term. The resources bought in the PP futures market will not enter into the spot PP market temporarily, as a result, the supply in some markets is a little tight. However, as the turnarounds of petrochemical companies end successively, the future supply will increase. Up to now, the overall operating rate of petrochemical companies has risen to about 90%.

Near the end of July, petrochemical companies are willing to enhance offers due to the low inventory. Some petrochemical companies are expected to continue uplifting PP EXW prices next week. In addition, the PP futures prices fluctuate at high levels, boosting the spot PP market prices. Recently, underpinned by the high PP futures, the PP market prices keeps firm. But the supply of PP will increase later, so if the demand cannot be improved a lot, the contradiction between supply and demand may become obvious. Thus, that will be likely to curb the increase in PP market prices. Market players should hold cautious attitudes towards the market and avoid to operate blind. Replenishing the inventory when PP prices are low can be chosen.