Supply Recovery Limited & Cost Decline: PP Market Shakes and Faces Potential Drop

April 21 news

According to Spotcom data, in the early part of late April, the PP market in China experienced high-level fluctuations, with more price declines than increases for various grades of products. As of the release on April 21st, the benchmark price for PP fiber was reported at 9,183.33 CNY per ton, representing a 0.18% increase from the beginning of the month.

Price Trend

Regarding raw materials:

Currently, market concerns about Middle Eastern crude oil production and transportation under the influence of geopolitical factors have eased somewhat. As a result, the premium in international oil prices has rapidly shifted, reflecting a confluence of easing negotiation prospects and negative fundamental factors. Signals of U.S.-Iran talks continue to emerge, navigation through the Strait of Hormuz has intermittently resumed, the IEA has lowered its supply-and-demand forecasts, and API inventories have surged dramatically. Under the combined effect of these multiple factors, crude oil prices are showing signs of weakening, and PP’s long-term cost basis has fallen from its previous high levels. On the propylene front, companies have recently completed concentrated plant maintenance activities, while demand remains steady, driving spot prices to reach record highs; however, prices have recently begun to ease somewhat. As for propane, although port arrivals remain limited, overseas prices—which had previously reached high levels—have been revised downward, and China’s spot prices have remained relatively firm lately. Overall, the price trends of PP’s various feedstock materials have been mixed, leading to a loosening of support for PP costs.

Supply side:

In mid-April, Chinese PP enterprises saw a mix of maintenance releases and returns, with the overall operating rate showing signs of recovery. As of the time of writing, the overall industry load in China has risen to around 71%. During this period, maintenance was carried out successively at 8 companies including Jinneng Chemical, Yulong Petrochemical, and Zhongsha Tianjin, but there were also 7 companies such as Zhenhai Line 2 and Sino-Korea Petrochemical that restarted operations. The scale of lost production capacity in the industry has shrunk, with current inventory levels rising to about 800,000 tons, and imports remaining low. Overall, the supply side still provides support for the spot price.

Demand side:

Affected by the high mid-term spot prices, the overall trading atmosphere in the downstream market of the industry is mostly cautious. Most of the oversold contracts and orders chasing higher prices from last month have been delivered, and the current transaction pace has slowed down, with a decrease in position-building operations. Buyers are mainly taking goods as needed, with scattered small orders. Some small and micro enterprises that reduced or halted production due to high costs have limited resumption of work, while large and medium-sized enterprises continue to steadily purchase. Overall, the demand side is in a wait-and-see attitude, performing below market expectations, providing only moderate support to PP.

Future Market Forecast

Entering late April, the PP market prices in China have slightly declined from their high levels. From a fundamental perspective, the industry's operating rates have largely moved out of the historically low range, but it will still take time for supply to fully recover. Social inventory levels have risen somewhat, while port arrivals of imported materials remain low. However, with a large production base, the supply can still meet demand. Recently, futures prices have been falling, and the widening basis has pulled down the spot price. PP analysts believe that the current PP market is caught between bullish and bearish factors, with unclear guidance, and there seems to be insufficient upward momentum, suggesting that there may still be room for further downward movement.

Technical Analysis

Analysts believe that, according to SpotTong data, the 10-day moving average for PP has recently crossed below the 20-day moving average, and the benchmark price has also fallen below the 30-day moving average. Auxiliary indicators show that PP prices are at recent low levels in the first five price tiers but remain at mid-to-high levels in the longer term, while also approaching a warning zone indicating overvaluation over the past year. It is judged that a downward trend in spot prices may soon take shape in the short term. In the near future, it is advisable to closely monitor international crude oil prices and maritime shipping conditions in the Middle East.