Maintenance Peak & Raw Material Prices Soaring—PP Rises Another 7% in a Single Day

March 23rd, News

According to the commodity market analysis system, in late March, China's PP market saw a "strong start," with prices surging significantly. As of March 23, the benchmark price for PP fiber was reported at 9,360 CNY/ton, a substantial increase of 7.05% from the previous trading day, and a year-on-year price increase of 40.96%. The market exhibited typical characteristics of a cost-driven rise.

Price Trend

Cost Side: The raw materials market is strengthening across the board, providing strong support.

Following the impact of transportation disruptions and cancellation of long-term contracts on Middle Eastern crude oil in mid-March, the situation has shown no signs of easing recently. Moreover, crude oil production in some countries has been significantly reduced due to force majeure events. Coupled with OPEC+’s firm stance on production cuts, international oil prices have risen sharply and remain at high levels. The ongoing uncertainty and prolonged nature of the U.S.-Iran situation continue to worry industry players, driving strong upward momentum in PP’s distant-term costs. On the propylene side, prices have followed suit, rising in tandem with upstream markets. Additionally, with a concentrated schedule of plant maintenance activities among enterprises—resulting in reduced output at some facilities—the effective supply in the market has markedly declined, highlighting a tight spot-market supply situation. At the same time, propane arrivals at ports have also decreased simultaneously, keeping China’s import prices persistently high and pushing the spot price center of gravity higher. Overall, the positive outlook for PP’s raw material markets provides robust support for PP costs.

Supply Side: Peak Maintenance Period Arrives, Easing Supply Pressure

Entering late March, maintenance plans for PP enterprises in China are relatively concentrated, with the overall operating rate not being high. As of the time of writing, the overall load level of the industry in China has dropped to around 70%. Previously, multiple plants at Zhejiang Petrochemical and Maoming Petrochemical underwent maintenance. Last week, Yulong Petrochemical and Tianjin Bohua also implemented their maintenance plans. The total capacity under maintenance in the industry is at a historical high, with the current weekly average total production below 730,000 tons, and inventory levels have dropped to 860,000 tons. Additionally, the arrival of imported materials has significantly decreased. Overall, the supply side provides decent support for spot prices.

Demand Side: High Prices Dampen Frenzy Buying, Transactions Proceed Cautiously

Affected by the high spot prices, the downstream market in the industry has generally adopted a cautious trading atmosphere since the beginning of the month. Earlier, some refineries had largely fulfilled their over-sold contracts and followed-up orders driven by rising prices; now, the pace of transactions has slowed down, and position-building activities have decreased. Buyers are mostly opting for just-in-time procurement, with small, sporadic orders dominating the scene. Some small and micro-sized end-user enterprises have reduced or halted production due to the sustained high costs, while larger and medium-sized enterprises have stabilized their purchasing behavior. Overall, demand remains in a wait-and-see stance, falling short of market expectations and providing only moderate support for PP.

Future Market Forecast

The current PP market in China is in a game situation of "strong cost, strong supply contraction, and weak demand." The supply side has tightened due to high maintenance levels, but with a large production capacity base, inventory can still ensure the basic supply of the market.

Overall, PP analysts believe that in the short term, the core driver of PP market trends will still be dominated by cost logic, and the spot price may remain in a high range with fluctuations. It is recommended to closely monitor the volatility in the crude oil market and the follow-up of downstream demand, and to be cautious of the further suppression of demand by high prices.