China's PPH downtrend intact amid uncertain demand recovery

Since early April, PP prices have gradually declined in China, with homo-PP raffia offers below the $1100/ton mark appearing in the market this week. This was mainly due to weak demand conditions amid the lasting impacts of strict Covid-19 curbs.

The falling yuan against the US dollar, and lower feedstock propylene prices have also added to an already bearish market coupled with supply pressure at home.

Although the news that Shanghai’s exit from lockdown is set for June 1st has generated some optimism since last week, players are still adopting a cautious stance about a potential demand recovery process considering that Tianjin is now facing a new lockdown, and the capital Beijing is still posting increasing cases.

Import PPH prices at 4-month low

According to the weekly average data obtained from ChemOrbis Price Index, homo-PP raffia and injection prices have fallen to their lowest levels since mid-January after falling for eight steady weeks.

A major Suadi producer lowered its raffia offers for June shipment by $70/ton from May, citing sluggish demand. “Buying import cargoes is too risky now due to the depreciation of yuan against the USD. Disrupted port operations at Shanghai ports amid Covid-19 restrictions also continue to affect import activity,” the agent noted.

A Chinese trader offered India and Middle East origin raffia offers with weekly losses of $30-40/ton.

“PP offers have continued to move down this week due to weak demand and supply pressure in the local market. Demand is mostly stable, with buyers staying on the sidelines. We think PP markets have room for further decreases over the near term, but the price reductions may be limited as crude oil prices are firm and prices have been significantly down recently.”

This week, import homo-PP raffia and injection prices for Middle East origin have been down by $30/ton from last week at $1090-1120/ton CIF.

Local PP market continues to trade below imports

A similar bearishness has been in place in China’s local PP market. Buying sentiment has stayed weak due to strict Covid-19 curbs and the off-season for the agricultural sector, as was reflected in Dalian futures prices.

September PP futures on the Dalian Commodity Exchange posted a weekly loss of CNY136/ton ($20/ton) as of May 25.

There is also pressure from the supply side, as a trader put it, “We think that the supply pressure is likely to increase further due to restart of plants from turnarounds, fewer shutdowns, and new PP plant start-ups.”

According to market sources, two major local producers’ combined polyolefin inventories were reported at 760,000 tons as of May 25.

This week, local homo PP raffia and injection prices have fallen CNY100/ton ($15/ton) so far this week to be reported at CNY8,500-8600/ton ex-warehouse, cash inc VAT, which come to $1116-1130/ton without VAT. This local level is almost equal to import prices on CIF terms, not including customs duties, clearance cost and inland transportation.

Cautious optimism about Shanghai’s reopening

Market players are cautiously awaiting the impact of Shanghai reopening from its current Covid-19 lockdown, to see if demand will recover and help sentiment.

“The recovery process is still slow as Covid-19 restrictions continue. According to the news, Shanghai will exit from the Covid-19 lockdown in early June but we think it will take about a month before things get back to normal,” a seller commented.