The price of polypropylene continues to rise

Recently, with the overall recovery of the construction, textile, home appliance and other industrial chains, the upstream production of polyolefin and other raw materials ushered in a "ultra-long standby" peak season. The continued boom in the market has brought benefits to the "coal-to-olefin leader" represented by Baofeng Energy.

According to data from Zhuo Chuang Information, following the October rally, coupled with the healthy performance of PP spot fundamentals, and the continuous rise of the main futures contract, the PP market saw an increase of about 900 CNY/ton in November. As of November 30, the price of drawing polypropylene in East China was 8,950 CNY/ton, an increase of 900 CNY/ton from the end of October, an increase of 11.18%, and 8.48% higher than the same period last year.

In fact, after the second half of 2020, polypropylene prices have maintained a relatively strong state and fluctuated upward.

"The increase in polypropylene prices is mainly driven by demand." Pan Jifeng, an analyst at Zhuo Chuang Information, told the "Securities Daily" reporter that in the world, my country's economy and domestic demand have recovered well. At the same time, due to the epidemic, foreign processing capacity has declined, and some foreign orders have returned to China. Starting from the second half of the year, orders from Chinese factories have gradually increased. Currently, some downstream industries have sufficient factory orders, and there is rigid demand in the market. Coupled with the pull of funds in the futures market, the replenishment behavior of traders and factories makes the market rise to form a positive feedback effect.

As for the market outlook of polypropylene products, many people in the industry continue to be optimistic.

China Universe Information analyst Xu Yanli also told the "Securities Daily" reporter that the most fundamental reason behind the price increase is higher-than-expected demand and persistently low inventory. Xu Yanli believes that at the end of the month and the beginning of the month, some sources of supply are tight, and the overseas epidemic is still serious. The development of some new overseas epidemics has increased the demand for masks. Downstream orders are good. Orders from multiple industries such as BOPP, white goods, and small home appliances have continued. Until January. The short-term polypropylene market maintains a high level and does not rule out small fluctuations in the short-term polypropylene market. However, the long-term polypropylene supply and demand situation is still optimistic, and the market is easy to rise but hard to fall.

Industry insiders pointed out that the overall profitability of the chemical industry is expected to surpass the previous high in the current economic cycle. The biggest beneficiaries are still leading companies with advantages in production capacity, technological level, and management efficiency, and a number of large companies with world competitiveness are expected to emerge. Based on the three major logics of increasing market share of leading expansions, increasing inventory cycles, and resonating domestic and foreign demand, companies such as Baofeng Energy, Hualu Hengsheng, Hengli Petrochemical, and Sanyou Chemical have received frequent attention.

Statistics show that in the last 30 trading days, the agency has given Baofeng Energy more than 15 recommended ratings such as "buy" or "overweight".

Kaiyuan Securities analyst Zhang Xucheng said that Baofeng Energy’s current full cost per ton of olefins is RMB 3,900 and net profit per ton is RMB 2,744. Based on the company’s normal operating rate of 110%, its single-season olefin production capacity reaches 330,000 tons, with 100% equity. It is expected to create a performance of 910 million yuan.

At the same time, Baofeng Energy is planning to expand polyolefin production capacity in advance while reducing costs and increasing efficiency. In answering investors’ questions, Baofeng Energy stated that the company has simultaneously deployed two major projects in Ningdong, Ningxia: a 500,000 tons/year coal-to-olefin project and a 500,000 tons/year C2-C5 comprehensive utilization olefin project. Among them, the 500,000 tons/year coal-to-olefin project is scheduled to be completed and put into operation at the end of 2022; the second is to add 3 million tons/year of coke production capacity, and the project is scheduled to be completed and put into operation by the end of 2021. At the same time, the company deployed a 4×1 million tons/year coal-to-olefin demonstration project in Ordos, Inner Mongolia this year, and the preliminary work of the project is progressing smoothly.

Orient Securities analysts said that Baofeng Energy is the most cost-competitive leading company in the polyolefin field. Even at the bottom of the industry's boom, ROE is expected to maintain more than 10%, and it has great potential for expansion and continued growth against the trend. In the future, as new projects gradually reach production, the long-term profit center still has a lot of room for improvement.