China’s post-holiday PP, PE outlook clouded by bearish factors

Pre-holiday PP and PE markets in China have remained on a cautiously firm footing in line with support from intensive maintenance turnarounds and high costs. During the week ending on May 3, local prices of PPBC inj. and LLDPE film rose by up to CNY100/ton ($14/ton), while import LDPE film saw fresh increases of $20/ton after six straight weeks of stability. Meanwhile, polyolefin sellers rolled over prices for other grades amid the holiday lull.

As market activities will resume gradually next week following the end of the Labor Day holiday in China that took place from May 1 to May 5, players have voiced expectations for the post-holiday period with some headwinds in terms of weaker supply-demand dynamics and cost support.

Rising supply comes to the fore

The current polyolefin markets are still supported by reducing supply amid the turnaround season. According to market sources, the two major local producers’ combined polyolefin levels were at 720,000 tons on April 30, declining by 75,000 tons when compared to a week earlier.

However, concerns over ample availability remain on the table, with a converter saying, “Despite more plant maintenance turnarounds, supply has been ample due to low offtake of polymer materials.” Further exerting supply concerns is the buildup of domestic inventory after the long holiday.

Downstream operations come to a halt during the holiday, while most petrochemical plants continue running in normal mode. Therefore, petrochemical stocks at home will experience a substantial increase when the markets re-open. “There is an accumulation of inventory during the holiday, and the utilization rate is anticipated to increase post-holiday, increasing supply pressure,” stated a trader.

In the meantime, data from ChemOrbis Production News Pro show an estimated 750,000 tons of PP are scheduled to come on stream this month if everything goes on track. The addition of new capacities might add to supply pressure, denting sentiment among players.

Lack of demand remains in the spotlight

Demand for PP is expected to see no meaningful improvement in the short term, while the state of demand has been mixed across different sectors. “While large-scale product company orders are relatively stable, small and medium-sized companies face significant financial pressures due to difficulties in obtaining orders. The pipe industry continues to experience sales pressure due to the impact of the real estate cycle. However, robust demand is observed for copolymers, driven by increased sales of electric vehicles and demand from the plastic woven products segment,” explained a trader.

As for PE, the end of the agriculture season is likely to dampen buying power further. A Xinjiang-based trader said, “The production of PE packaging film is expected to decrease, reducing buying enthusiasm. After the holiday, agricultural film production will gradually enter the off-season, which will contribute to the weakness in demand.”

Meanwhile, local offers of PP and PE grades still offered a competitive edge when compared to imports since high prices of imported materials continue to depress demand in the import markets, according to players. In the event that post-holiday scenarios bring back some downward adjustments, more buyers might shift their focus to low-priced domestic polyolefins.

Falling upstream values add extra pressure

Players are closely monitoring the movement in upstream values considering the recent plunge in crude oil prices amid demand concerns. On a weekly comparison, the Brent crude oil benchmark sharply dropped by more than 6% to settle at $83.67/bbl on May 3, indicating the lowest level since mid-March.

ChemOrbis Price Wizard reveals that spot propylene prices declined by $10/ton from a week earlier to $850/ton on a CFR China basis as of April 30, while spot ethylene prices hovered around the previous week’s level at $900/ton with the same terms. The data also show the spreads between import PE film grades and ethylene have expanded to three-and-a-half-month highs, which might potentially hinder sellers’ firm stance.