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China’s local PP markets return on a cautiously firm note, defying weak fundamentals

by Thi Huong Nguyen - thihuongnguyen@chemorbis.com
  • 21/02/2024 (02:28)
Although Chinese players have yet to fully return to their working desks after the prolonged holiday, PP markets officially re-open with fresh cost-driven price hikes inside the country. Rising energy prices underpin cost support, paving the way for sellers to raise their offers when compared to the pre-holiday week.

In the meantime, the overall trading atmosphere remains cautious since a slower-than-expected demand recovery and supply pressure at home are exerting pressure on market sentiment, limiting potential increases in PP prices.

A closer look at latest price levels

Initial homo-PP raffia and injection price levels for the current week have been reported at CNY7300-7700/ton ($908-957/ton without VAT) ex-warehouse China, cash including VAT, indicating rollovers to CNY100/ton ($14/ton) increases from the pre-holiday levels.

Data obtained from ChemOrbis Price Index reveals that the weekly average price of local homo-PP raffia and injection has reached its highest level since mid-October 2023.

China-local-PP

As a side note, following an increase of CNY40/ton ($6/ton) on the first settlement after the holiday, PP futures prices dropped by CNY122/ton ($17/ton) on February 20, somewhat weighing on players’ sentiment. However, the prices are still CNY107/ton ($15/ton) higher when compared to the pre-holiday week.

Cost push gives sellers the upper hand

While Chinese players stayed away from the local PP markets to celebrate the Lunar New Year, oil prices increased sharply during the holiday. The ongoing rally in the energy market has raised production costs, primarily contributing to the firmness of PP markets.

According to Chemorbis data, Brent crude rose by more than 7% from two weeks ago to settle at $83.56/bbl on Monday. At the time of writing, the benchmark posted a small decrease of roughly 1%, to be quoted at $82.91/bbl.

Will supply-demand dynamics support price hikes?

Most likely, no. Here is why:

The biggest change from the pre-holiday period has undeniably pointed to the surging supply pressure at home. An accumulation of stocks during the holiday period was traditionally expected, and it did happen.

According to market sources, the two major local producers’ combined PP and PE inventories are standing at 970,000 tons as of February 20, significantly 75% higher than the pre-holiday levels on February 7.

Apart from this, there is also a shadow from the expected PP start-ups next month, which are around 1.35 million tons/year, ChemOrbis’ Production News Pro suggests.

As for demand, the recovery across downstream sectors remains slow, while buyers are reportedly showing resistance to high prices. A Xiamen-based trader said, “A supply overhang appears due to ample polyolefin inventories. Demand stays weak as many factories have purchased in advance while others have yet to officially start operations.”

Therefore, given firm production costs on the one hand and a lack of support from supply-demand fundamentals on the other, most market participants are ruling out the risk of substantial decreases and voicing expectations of consolidation.
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