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Can China PP buyers’ resistance challenge the global rally?

by Esra Ersöz -
by Pınar Polat -
  • 03/03/2021 (04:04)
This is the critical question raised in PP markets today in the height of the relentless upturn in global PP prices: Will China PP buyers’ resistance grow enough to cause upturn to falter?

Supply snarls coupled with freight hurdles have already propelled PP markets across the world to multi-year highs and even all-time highs in some cases, whereas the gains in China remained comparatively minimal given its installed domestic capacity, purchasing power and less exposure to the freight crisis.

China PP upturn lags behind the rest of the world

The pace of tightness-driven PP hikes in global markets has accelerated since February amid production hiccups in the US coupled with rising upstream costs. As the ChemOrbis Product Snapshot table below compares prices and price changes across different regions from late January to today, this has found a striking impact on major markets including Turkey, Southeast Asia, and Europe; while the China market has witnessed smaller gains with its prices standing well below the rest of the world.

In Turkey, the weekly average of the import PP raffia market hit its highest level since August 2008 . As for PP fibre, data from ChemOrbis also show prices reached an all-time high. Among all regions, Turkey has faced the sharpest gains due to its dependence on imports.

In Europe, PP offers on FD NWE and FD Italy basis have also mirrored the global rally, reaching their highest levels since June 2015. The figures in the table below are converted to the US dollar for a healthier comparison with other countries/regions.

In Southeast Asia, meanwhile, import PP offers are now standing at the highest levels in the past five years. On the other hand, China’s PP market only joined the global rally last week. Homo-PP raffia and inj. prices on CIF China basis were on a largely steady trend before jumping in the post-Chinese New Year period, ChemOrbis data suggest.

*Right click the image and open in a new tab to view the full-sized snapshot.

PP Prices – Import – Turkey – Europe – China – Southeast Asia

China demand is pivotal

Footsteps of a growing resistance

Although the China PP market has notched smaller gains, how demand will evolve in China is crucial in terms of setting the tone of the sentiment.

The bullish return of the markets from the Lunar New Year holiday in the final week of February helped drive prices higher. At that time, oil-related gains in Dalian futures and lower-than-expected local polyolefin inventories right after the holiday period, as well as supply limitations, also contributed to PP gains in the China market.

However, buyers’ resistance has been growing to the high price levels recently, according to industry players.

Local inventories high, Dalian futures down

On February 18, the first official business day after the holiday, two major polyolefin producers’ combined polyolefin inventory was reported at 940,000 tons. However, the market has been slow to digest these levels since then with inventory levels standing at 915,000 tons on March 2.

Not surprisingly, buyers’ preference to suspend their purchases and high stocks at local producers have put pressure on Dalian futures, leading to a downward correction on spot prices as well. May PP futures on the Dalian Commodity Exchange posted a slight weekly loss of CNY66/ton ($10/ton) as of March 2.

Local PP prices corrected down

Local homo-PP raffia and inj. Offers have edged down by CNY100/ton ($15/ton) from last week to stand at CNY8900-9300/ton, ex-warehouse China, cash including VAT basis ($1220-1275/ton without VAT).

As a trader put it, “Local PP prices have witnessed a softening so far this week in line with the weakening in Dalian futures. Demand has been moderate with end-users mostly staying on the sidelines to get more clue on market conditions.”

Can demand take the driver’s seat when supply tightness is not poised to find relief?

Key to watch will be whether global PP suppliers particularly from the Middle East and South Korea will adjust their offers to China, particularly when there is no immediate relief in supplies. What is more, China has already been enjoying relatively much lower prices compared to the rest of the world.

Sellers’ firm stance may prevail on supply disruptions in the US , coupled with the plant shutdowns in the Middle East and Asia, according to several players. PP supplies from the Middle East were already tight, before the unexpected shutdowns in the US Gulf, due to planned shutdowns at PP plants of Advanced Petrochemical, Saudi Kayan and Ibn Zahr in March. Intensifying the tightness, supply from India and Malaysia is expected to be limited due to planned turnarounds or delayed restarts.

Import offers maintain uprun despite correction in local market

Even though local PP prices have witnessed a downward correction recently inside China, import prices for Middle-East origin homo-PP raffia and inj. have increased further this week by $30-50/ton to $1230-1260/ton CIF China, cash.

A Shanghai based trader said, “Import PP prices have firmed up again this week, buoyed by limited supply on US outages. Sellers also prefer to divert their cargoes to export outlets rather than China for better netback opportunities. Downstream buyers are more active as China’s economy continues its strong recovery. However, the prevailing market levels particularly for import PP are found hard to see acceptance.”

Another trader added, “On the supply front, some turnarounds are expected to take place in China throughout this month. Considering this with the peak season in March-April, we think that local prices will resume their uptrend soon after they undergo a healthy downward correction.”

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