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China PP markets Q1 2023 outlook: Will new PP capacities eclipse efforts to lift prices?

by Pınar Polat -
  • 15/12/2022 (21:22)
Although China PP markets spent the first quarter of 2022 on a firm note, the remaining part of the year was not that bright. Chinese producers have elected to run plants at lower rates mostly in order to keep up with the high production costs and limit local supply, but prices have still yielded to the demand, which has been persistently weak.

Before sharing views about which scenarios are likely to play out in the first quarter of 2023, it will be better to take a deeper look at what has happened so far in 2022.

2022: Rise and fall of China PP prices

ChemOrbis data show that the weekly average of CIF homo-PP raffia and injection offers hit the highest point of the year in the final week of March at $1235/ton and never got closer to such a level again until the year-end.

On the other hand, prices did not witness a sharp bottom level this year either. The lowest point of 2022 was recorded at $880/ton CIF in early December, not even close to the $690/ton CIF level in the heat of the pandemic, March 2020, which was the second all-time low level since ChemOrbis started to compile data in 2008.

PP – China

Demand confronts attempts to lift PP markets

Starting from Q2 2022 until mid-November, prices have gradually lost ground. But this does not mean that there have been no attempts to reverse the trend, which were all confronted by weak demand.

Unlike countries across the globe, China adhered to its zero-Covid policy during most of 2022. This has not only wracked havoc on demand conditions and economic development of the country but also weighed on businesses and consumers in the rest of the world, who rely on China for supplies of goods.

China took the first steps of easing Covid curbs in early November by travel ease for travelers but the positivity around this failed to be sustained. Soon after, in late November, the country faced unrest amid protests against the strict rules, followed by a major policy shift in the country’s national pandemic policy as of early December. This has boosted sentiment ever since, with players observing how long it will take for the demand to fully recover.

Local polyolefin supply levels remained low for most of 2022

As part of domestic suppliers’ efforts to bear the high production costs, the two major producers’ combined polyolefin inventories in China have remained curbed particularly since July due to the persistently poor demand.

Starting from late July, stock levels have hovered at and below 700,000 tons, or even visited below 600,000 tons a couple of times. Stock levels at around 500-600,000 tons are all deemed critical thresholds, suggesting that stocks are not high enough inside.

On a side note, China has not attracted too much attention of overseas suppliers, as higher netbacks have been obtainable in other export outlets. Therefore, import supply conditions have not also been able to become a major determinant factor for PP prices in China this year.

What 2023 holds out for China PP markets?

ChemOrbis data show that the weekly average of CIF homo-PP raffia and injection prices have gained 12% during the first quarter of the year but lost 27% since then. Now that 2022 is almost over, players have started to discuss what to expect from 2023.

The two factors have already took the lead in shaping expectations, how post-dynamic zero Covid will be and to what extent the new capacities will be effective.

The new “normalcy”

Undeniably, China’s change of policy on Covid curbs after years of strict quarantines and lockdowns has provided some support to the markets towards the year-end. However, the impact of this decision on the demand front is yet to be fully felt, as analysts say that more time is needed for the return to normalcy.

The recent developments have clearly shown that China’s loosening of Covid restrictions means no end of its war against the pandemic, considering low levels of immunity in the population and a disease control strategy that prioritized mask-wearing, social distancing, and frequent testing.

The country is now facing a rapid spread of the virus, which also disrupts daily life and poses new challenges for the public and health system. The spread may continue over the near term, as people travel across the country to see their families during the Lunar New Year holiday which falls to late January 2023.

China PP capacity to expand notably in 2023

Despite gloomy demand outlook and macroeconomic woes, China’s PP capacity additions are expected to continue over the next year.

ChemOrbis Production News Pro shows that China added 3.1 million tons and 5.4 million tons of PP capacity in 2021 and 2022, respectively.

2023 will be more important in terms of PP capacity expansions. Data also shows that the country’s PP capacity will continue to grow at a faster rate than the previous years, indicating 9.5 million tons of new production on the way.

PP – China

Such a growth rate is not only a pressure factor for China’s local PP markets. In a scenario where local demand stays limited and new capacities run smoothly, China will continue to ramp up PP exports in 2023.

ChemOrbis Stats Wizard suggests that China’s PP exports in 2021 already hit a record-high level of 1.3 million tons. The up-to-date data for 2022, meanwhile, is already standing at 1.2 million tons.

Where will China PP prices be headed in 2023?

Check out ChemOrbis Price Forecast Reports, which are designed to cover everything you need to get an idea of where the PP markets are headed in the upcoming months. Click the image below to request a sample.

2022–Polymer – Prices – Forecast

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