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Crude oil rally keeps China’s PP markets firm

by Pınar Polat -
  • 08/09/2023 (02:36)
In China, both local and import homo-PP markets have maintained a stable to firmer trend since the first half of July. The recent rally in energy markets has contributed to the sentiment in the PP markets this week, although it has not fueled big price hikes so far as underlying demand recovery still falls short of expectations and oversupply concerns loom.

Prices gain nearly 10% in two months

The weekly average data obtained from ChemOrbis Price Index shows that local and import homo-PP raffia and injection prices have increased by 9.6% since the start of the uptrend to currently stand at $944/ton ex-warehouse China VAT excluded and $910/ton CIF China, cash basis, respectively.


These levels are also indicating the highest levels since early May, meanwhile, data also suggested.

On a weekly basis, the overall range for import homo-PP raffia and inj. offers was assessed stable to $10/ton higher at $870-950/ton CIF China, cash. The prices were assessed stable to CNY200/ton ($28/ton) higher from last week at CNY7600-7900/ton ($926-963/ton without VAT) ex-warehouse China, cash including VAT.

Propylene holds firm in Asia

Asian propylene prices have maintained firming on short covering and a pricing recovery across downstream markets in China and Southeast Asia. ChemOrbis data also show that CFR China basis propylene prices have climbed to $835/ton at the time of press, the highest level since mid-May.

This ongoing price increase for PP is mainly underpinned by the rise in feedstock and energy values, market players concurred.

Local fundamentals offer mixed bag

While Dalian futures prices have been lending support to the PP sentiment despite some fluctuations, local inventory levels have remained at/above 650,000 tons most of the week.

Despite settling slightly lower by CNY29/ton ($4/ton) on September 7, January PP futures on the Dalian Commodity Exchange posted an increase of CNY189/ton ($26/ton) weekly.

Market sources also reported that some new capacity expansions were delayed due to the cost pressure while some of them were still being launched. ChemOrbis Production News Pro suggests that 1.1 million tons of new PP capacity is expected to become online only in September while the volume expected for the final quarter of the year is 3.1 million tons.

The two major producers’ combined polyolefin inventories were standing at 650,000 tons as of September 7, higher than the same period of last year.

Demand yet to meet expectations but still improves

PP demand in China is a topic that players have been voicing different opinions about for some time. Currently, the start of the Golden September Silver October, which is known to be the strongest period for polyolefins throughout the year, has already led to expectations of a stronger demand along with the government’s efforts to revive the economy. Although there has been a contribution to the sentiment, the impact seems to be limited so far with players still sounding cautious.

A trader said, “Recently, the Chinese government has announced measures to stimulate the economy, particularly in the property sector. However, there seems to be a disconnect so far as demand is still not keeping pace.”

Buyers’ resistance to higher prices continues

Moreover, buyers have been showing resistance to the gradual rise in PP prices citing weak downstream demand and a slow economy.

A source from a Chinese producer said, “Producers are willing to keep the high price and intend to raise offers further due to cost pressure and they are still selling at a loss, but buyers are showing resistance to the high prices as downstream demand is still limited and the overall economy is slow. Traders and buyers are more willing to keep low inventories and source basis needs only.”

PP believed to have room for further gains

Although buyers’ resistance may put a cap on the amount of further price hikes, players mostly expect to see further gains in PP offers so long as costs rise.

The source added, “Still, demand is better than in the previous months due to the peak season and the market is in an upward trend. We expect the market to rise further in line with the gradual impact of the peak season and cost pressure.”
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