Global PP markets buckle up for massive capacity additions from China

According to the latest data from ChemOrbis Production News Pro, global PP markets are readying to face huge capacity additions in 2023. More than 10 million tons of new PP capacity is slated to come online globally, 80% of which is from China.

China is set to lead the proposed additions if they come as scheduled

In the PP market, China is set to welcome more than 8 million tons of capacity for the full year, 18% of which has already come onstream in February. Sinopec Hainan’s two PP plants with a total capacity of 400,000 tons/year started up last month while PetroChina Guangdong’s 500,000 tons/year PP plant and Sinochem Hongrun’s 450,000 tons/year PP plant were also added.

By the end of the first quarter, there are four more different producers including Dongguan Grand Resource, Guangxi Hongyi, Huating Mei Ye and Shandong Chambroad preparing to start up a cumulative capacity of 1.7 million tons.

In April, there is another 1.5 million tons planned, 1.2 million tons of which belong to Donghua Energy (Maoming) Petrochemicals. In June, Ningxia Baofeng and Sinopec Anqing are also planning to add two PP plants with a cumulative capacity of 800,000 tons/year.

That is to say, China will start up a total capacity of more than 3 million tons by the end of the first quarter and this will be raised to 5.4 million tons by the end of the first half of 2023, unless they face a postponement.

How will China manage massive capacity additions amid slower-than-expected demand?

Players widely concur that demand recovery proved short-lived following the end of the restrictions related to the zero-covid policy back in early January. This was particularly obvious right after the return from Chinese New Year holidays.

China’s weaker-than-expected forecast of GDP growth for 2023 at 5% also disappointed many investors in stock and commodity markets regarding the overall state of demand in China, although focus has just recently turned to the possible outcome of two-sessions , where plans for stimulating domestic demand and boosting China’s economic recovery are expected to be discussed.

Run rate cuts are here to stay!

As can be seen from the ChemOrbis Production News Pro graph below, China has been gradually adding new capacities in small portions since last year. These additions will ramp up right after the end of the first quarter, as mentioned above. On the other hand, there are more capacities going offline, far exceeding the additions.

In March, for instance, the graph suggests that the addition of new capacities in ratio to installed capacities is 5.7% whereas the ratio of offline capacities to installed capacities is estimated much larger at almost 22%. It can be pivotal to remind that the reality may have much larger reductions. That is to say, Chinese producers have been cutting a lot more supplies than the arrival of new capacities.

In the following months, this is highly likely to be the case. The more supply comes, the more cuts China may need to keep its PP prices under check. This is also a bellwether for Chinese sellers’ need to beef up their export sales. Thus, supply balance should be closely watched in China under ChemOrbis Production News Pro Tool.