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China, SE Asia PP outlook for 2024: Supply pressure to continue keeping markets on edge

by Merve Sezgün -
by Esra Ersöz -
  • 03/01/2024 (10:15)
2023 was a year of challenges in Asia’s PP markets due to the lasting impact of the post-pandemic decrease in demand. This resulted in consistently reduced operating rates in key downstream industries, influenced by sluggish global economies. While PP producers managed to counterbalance the challenge of new capacity additions by strategically cutting run rates, the supply landscape remains uncertain, especially with the anticipation of additional capacities, notably in China.

2023: Efforts to crimp supply prevent freefalls

Most polyolefin producers in Northeast and Southeast Asia began reducing operating rates or extending maintenance shutdowns at their plants starting from the second half of 2022, and they managed to keep supplies under control to some extent throughout 2023.

As China’s much-anticipated post-pandemic economic boom failed to materialize in 2023, this disciplined management of supply cuts counterbalanced the persistent absence of a healthy demand recovery in key downstream sectors, preventing freefalls in PP prices in the regional markets.

PP prices were already low in 2023, moving in a narrower range

Data from ChemOrbis Price Index indicate that the highest homo-PP raffia levels for the year were noted in February at $965/ton CIF China and $1110/ton CIF SEA. These figures, however, were significantly lower than the weekly averages in March of the previous year, which stood at $1235/ton and $1420/ton, respectively.

Despite this stark contrast, raffia prices experienced an overall decline of approximately 14% from February to July in 2023, reaching their lowest levels of the year at $830/ton CIF China and $885/ton CIF SEA. In contrast, there were more drastic drops of around 28% in 2022 during the extended downturn from March to November.

China’s import PPH raffia market faces longest period under $1000 mark

An important observation in analyzing the 2023 data is that it marks the longest period ever that China’s import homo-PP raffia market remained below the $1000/ton threshold. As can be seen in the graph below, the weekly average of homo-PP raffia prices on CIF China basis has consistently stayed below this mark for almost one-and-a-half years since July 2022. Previous instances of the market being below this threshold occurred during Oct 2019-Oct 2020, Oct 2015-Mar 2016, and Oct 2008-Mar 2009.

PP – China – Southeast Asia

More new capacities on horizon: Supply cuts will likely continue in 2024

Data from ChemOrbis Production News Pro suggest that China increased its annual PP production capacity by 5.2 million tons in 2023. Looking ahead, the country plans even more significant capacity expansions, targeting the introduction of around 8.2 million tons of PP in 2024, making up around three fourths of global capacity additions this year, as can be seen in the below pie chart on the left side.

In Vietnam, plans are also in motion to introduce 400,000 tons/year of PP in 2024, while India plans to increase its annual domestic PP production by more than 1.5 million tons this year.

Since the plans for further growth in capacity present challenges in maintaining market balance and the risk of potential oversupply, major producers across Asia are likely to continue prioritizing tight control over their production rates to maintain the delicate balance between demand and supply.

Will demand recover in 2024?

In 2023, PP suppliers faced challenges due to the absence of a robust demand recovery in crucial derivative sectors, as sluggish global economies led to substantial reductions in orders for end-products at the converter level.

Economic indications from both China and Western economies will play a crucial role in shaping the outlook for PP demand.

China still grapples with uncertainties in its crisis-hit property sector. This uncertainty poses a challenge to the overall economic recovery, although the Chinese government has been ramping up efforts to bolster domestic consumption and shore up the housing and infrastructure projects . As per the OECD projections, the country is expected to experience a deceleration in its economic growth. The forecast indicates a slowdown in its GDP growth to 4.7% in 2024 and further to 4.2% in 2025.

In Western markets, which are key destinations for finished goods from Asia, economic contractions and recession concerns continue to loom. The slow pace of recovery in these economies adds another layer of complexity to the demand equation for PP in the region.

“Demand may not surge suddenly in the first quarter, but we expect to see an increase in trading activities ahead of the Chinese New Year holiday in February. More buyers may step in to build some inventory to cover their post-holiday needs ahead of the high season. However, we believe that the real focus for potential demand recovery will be on the second quarter of the year,” a major trader based in Singapore commented.

China’s PP imports shrank less than expected, export growth lost momentum

ChemOrbis Stats Wizard suggests a yearly decrease of 8% in China’s January-November PP imports. Contrary to expectations, a sharper decrease did not occur in imports despite the huge capacity additions inside. In terms of PP imports, China was still the world’s top PP buyer with around 4 million tons in 2023.

China’s exports were flat from the same period of last year at around 1.2 million tons, meanwhile. The growth in exports has definitely lost momentum since last year and the size is still small in comparison to the imports and the capacity additions of the previous years. Chinese sellers have not been getting aggressive in their exports due to a plethora of reasons.

Is China’s PP market caught between devil and the deep blue sea?

Uncompetitive feedstock costs were the first reason to avoid excess Chinese PP flooding into markets. Unfavorable freight rates to the destinations outside Asia as well as rising trade barriers in nearby countries also curbed the Chinese PP’s competitive power.

Even though China may not ramp up exports to the degree they initially aimed given the possibility that these factors are here to stay, PP imports may face a larger pressure this year than in 2023 as delaying new capacities and running plants at lower rates may not last longer due to the utility costs. 2024 may see competition heat up amidst supply glut and staggering demand.
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