August 1st news
According to SpotCom data, the price of PP in China increased significantly in July. The prices of various grades of products were adjusted upward. As of July 31, the benchmark price for PP fiber was 8973.33 CNY/ton, representing a 13.01% increase from the beginning of the month.
Price Trend
Regarding raw materials:
Contrary to the positive signals from the U.S.-Iran talks in June, the situation in the Middle East took a turn for the worse in mid-July. Concerns about another potential blockade of the Strait of Hormuz surged among industry players, causing geopolitical premiums to re-emerge. As a result, international crude oil prices rebounded rapidly, and PP’s long-term cost levels rose accordingly. In the first half of the month, propylene prices were boosted by this trend; coupled with the bottoming-out of prices in late June, propylene prices staged a strong rebound. However, constrained by weak demand, downstream buyers became reluctant to accept higher-priced supplies, leading to a swift price decline in the second half of the month. Overall, during the month, PP benefited from robust support from its cost structure. On the other hand, given the current high-level correction in feedstock prices and the gradual exhaustion of cost-driven support, it is expected that the support from feedstock sources at the beginning of August may start to lose momentum.
Supply side:
In July, Chinese PP companies saw a mix of maintenance and restarts, with the overall operating rate slightly increasing from a low level. At the beginning of the month, Maoming Petrochemical's Line 3 was restarted, while Yulong Petrochemical's Line 1, Fushun Petrochemical's old line, and the integrated project of Guangxi Petrochemical were shut down. At the end of the month, Zhenhai Petrochemical's Line 1 went under maintenance. As of the time of writing, the overall industry load in China is around 70%, with weekly production close to 730,000 tons. Current inventory levels are around 450,000 tons, with overall supply being ample. In the coming period, there are more plans for facilities to return to operation, and Sinopec Tarim's facility will also expand its capacity within the month. Additionally, considering the pressure from the 2609 contract, it is expected that the increase in supply will provide weaker support for spot prices.
Demand side:
Current polypropylene consumption has not yet recovered from the off-season levels, and the downstream market in the industry is not fully accepting of high-priced goods, with an overall cautious trading atmosphere. End-user companies are purchasing on a need basis, and inventory building operations are lackluster, with mostly small, sporadic orders being seen. For small and medium-sized enterprises, the improvement in operating rates is limited, and there is a strong sense of wait-and-see in the market. Overall, demand provides only moderate support for PP.
Future Market Prediction
In July, the price of PP in China increased significantly. From a fundamental perspective, the cost side saw an increase followed by a downward revision, while the industry load was adjusted upwards. The demand side continued to experience a low season, and it is unlikely to see a significant increase in the short term. Under the supply-demand contradiction, the market's spot resources appeared abundant. PP analysts believe that although the current PP market has high cost values, supply is strong and demand is weak. The entanglement of bullish and bearish factors may lead to insufficient upward momentum in the future, and the market may enter a consolidation phase.
Technical Analysis
Analysts believe that according to SpotCom, on July 10th, the 10-day moving average of PP crossed above the 20-day moving average, with the difference moving positively before retreating, and on the 31st at the end of the month, the 10-day moving average crossed below the 20-day moving average. On the other hand, the auxiliary indicators show that the PP price is at a recent low in the 5th tier, and at a medium to high level in the distant term. It is judged that the short-term spot price downside risk has increased, and it is recommended to closely monitor the international crude oil and Middle East shipping situation for future market trends.
