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Headwinds await China’s PP, PE markets post-holiday period

by Thi Huong Nguyen - thihuongnguyen@chemorbis.com
  • 06/02/2024 (10:28)
In China, players have left their working desks unmanned to celebrate the Lunar New Year holidays, which start later this week, leading to muted markets. Despite a further decline in demand, cost pressures and reduced import supply have lent support to suppliers across import and local polyolefin markets in the pre-holiday week.

In the meantime, the potential imbalance in supply-demand fundamentals is raising questions about the sustainability of the current cautious uptrend in PP and PE prices when players return from the lengthy holidays.

Pre-holiday markets boosted by sellers’ hike attempts

As of the week ending on February 2, the overall range for import PP offers was assessed stable to $20/ton higher from the previous week at $880-930/ton for homo-PP raffia and inj. and at $890-950/ton for PPBC inj., both on CIF, cash. Import PE prices were also assessed stable to $20/ton higher at $1020-1060/ton for LDPE film and $950-1020/ton for HDPE film and stable to $10/ton higher at $920-990/ton for LLDPE film with the same terms.

According to data from ChemOrbis Price Index, China’s import LDPE film market has reached its highest level since March 2023, while HDPE film has hovered around more than three-month highs. As for homo-PP raffia, prices have stood at their highest levels since October.

However, the post-holiday period is likely to come with certain headwinds, which may dampen market sentiment and bring back some downward adjustments from the sellers’ side.

Supply pressure returns on holiday accumulation

Downstream operations will come to a halt during the holidays, while most petrochemical plants still run in normal mode. As a result, petrochemical stocks at home will significantly increase when the markets re-open. A trader expressed concern over stock accumulation, saying, “We expect to see heightened supply pressure in the aftermath of the new year, as production activities will proceed as usual.”

The two major producers’ combined polyolefin inventories were reported at 560,000 tons on February 5, increasing by 20,000 tons when compared to last week, according to market sources.

ChemOrbis’s Production News Pro, meanwhile, reveals that an estimated 900,000 tons of PE are scheduled to be added to China’s capacity this month, while larger additions of 1,350,000 tons of PP and 1,200,000 tons of PE are expected to come into production gradually in March. The massive new capacities will undoubtedly cause more supply concerns, denting sentiment among players.

On the other hand, import supply, especially from the Middle East, may continue to encounter tightness due to maintenance activities and, in turn, give import sellers the upper hand. “The spate of maintenance turnarounds in the Middle East during January and February have led to noticeable increases in prices. Regional suppliers have pre-sold their materials up until after the Lunar New Year, with some of them even pre-selling March allocation,” said another trader.

Limited demand remains in place, but long term may see revival

Traditionally, market participants tend to take extended leave during this festive period, and the lingering impact of the prolonged holidays in their minds may dampen buying enthusiasm temporarily. In other words, the markets after the holidays are anticipated to experience a further decline in demand, posing more challenges to the current cautious firming trend in polyolefin prices.

Although unfavorable economic conditions affect downstream performance, with buyers maintaining limited purchases in the past few months, the demand outlook is expected to see some light in the post-holiday period onwards. A producer’s source said, “After the holidays, greater economic recovery and more monetary stimulus by the PBOC will potentially result in greater demand recovery for both kinds of polyolefin and their finished products.”

Downsides in energy markets under close watch

Along with the absence of supply pressure, cost support currently plays an important role in the uptrend across the PP and PE markets. Therefore, players are keeping an eye on the movement in upstream values considering the recent retreat in crude oil prices amid geological turmoil.

Brent crude oil prices recorded a substantial weekly loss of 7.4% to settle at $77.33/bbl on February 2. At the time of writing, the benchmark continues to decrease by around half a percent, to be quoted at $76.91/bbl, meanwhile.

As a side note, the local markets are currently starting to show signs of weakness, with a Shenzhen-based trader reporting, “The domestic market is weakening. This could be partially attributed to the decline in oil prices and LPG.”
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