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Post-holiday PP, PE expectations call for corrections from 6-month highs in China

by Thi Huong Nguyen -
  • 03/10/2023 (10:41)
In China, there is a week-long pause in trading activities in polymer markets as players are celebrating National Day’s holidays, which last until the end of this week. Before the start of the lengthy holidays, sentiment in the country’s polyolefin markets somewhat faltered.

Prices mostly closed the pre-holiday period on a stable note, while domestic PP prices succumbed to falling futures markets, resulting in slight drops after an eleven-week uptrend.
In the meantime, players have voiced post-holiday expectations calling for some downward corrections due to a series of bearish factors. These expectations diverge from the prevailing strong cost factor, indicating a nuanced assessment of the market dynamics.

Possible pullback after a long uptrend

The sustained uptrend in China’s polyolefin markets has pushed the prices to their highest levels since April-May, whereas the current market fundamentals, coupled with buyers’ resistance to high-priced materials, appear not to be supportive of further hikes.

Therefore, a majority of players have expected polyolefin markets to return from the holidays on a stable to softer footing as it is time for some downward adjustments after a multi-month upturn. Some players highlighted, “The price uptrend has been ongoing for the last three to four months and may be due for a pause or marginal cuts.”

Ample availability pressures the markets

PP and PE markets are likely to be flooded with supply after the holidays due to a traditional accumulation of local inventory and additional capacities, raising supply concerns over market players.

“Players are strongly anticipating that inventory will accumulate inside the country after the National Day holidays, which leads to concerns over significant supply pressure in the future,” said a trader based in Zhejiang.

Additionally, the PP market, in particular, will face more challenges amid the startup of new plants. ChemOrbis’s Production News Pro suggests that an expected total capacity of 1.35 million tons/year will go into production only this month.

Weaker-than-expected demand dampens sentiment

Demand has indeed indicated some encouraging developments amid the peak season and pre-holiday replenishment. However, overall buying power continues to fall short of expectations, especially when compared to the same period last year. This is because of weak downstream operations and a still-fragile economy, defying the country’s multiple stimulus schemes.

Buyers largely approach the markets with cautiousness, replenishing on a need-basis or staying on the sidelines. The Zhejiang-based trader added, “Despite macroeconomic policies supporting the market, overall demand remains relatively sluggish as the traditional high season has not brought on a substantial improvement in downstream buying interest.”

High levels are also a culprit behind faltering demand, as they result in resistance from buyers. “Buyers are currently resisting high-priced raw materials considering the lack of end-user demand and the overall weakness of the economy. They prefer to keep minimum purchases for basic needs,” another trader commented.

But possible downswing deemed manageable

However, most players concur on the fact that the potential downturn might be under control mainly thanks to the combination of strong upstream values and macroeconomic effects.

ChemOrbis Price Wizard reveals that crude oil prices are trading above a $90/bbl mark, the highest level since early November 2022. Following suit, spot ethylene and propylene prices have edged up to $880/ton CFR China and $870/ton CFR China, respectively, as of September 29, according to ChemOrbis data.

The government’s series of economic boosters are expected to have a deeper effect on domestic consumption and spending during the fourth quarter, which might also lead to better demand for polymers. China’s real estate industry has reportedly signaled some slight improvements, while sales of electric vehicles are also favorable, proving the positive influence of the macroeconomic efforts.

In the meantime, a boom in demand is not insight, but the ongoing “Golden September, Silver October” peak season seems to underpin players’ confidence to a certain extent.
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