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Rally in China’s PP market loses steam, cost pressure remains

by ChemOrbis Editorial Team -
  • 18/07/2012 (09:36)
The PP market in China jumped up in early July, finding support from the bullish upstream developments. This cost-push rally was important as it ended a two month downward trend in the region, and reintroduced a firm sentiment. However, even in those days, many players were skeptical about the sustainability of the upward trend in the face of sluggish demand.

The last two weeks have proved that the rally lacked support from the demand side as the increasing trend has lost steam. In China’s import market, some major producers have revealed their PP offers for August shipments with price increases pointing to their limited allocations and higher upstream costs. However, the sentiment on the distributors’ and traders’ side is not as firm as it is amongst global producers since demand is not satisfying. The discounts that surfaced this week in the domestic market have also shaken traders’ firm stance, causing them to lose confidence about the outlook.

In the domestic market, disappointing sales have forced some Chinese producers to yield to price discounts this week. “Buyers have stepped out of the market and taken a wait and see attitude out of hopes of finding lower offers in the days ahead,” a producer source commented. Some distributors remarked, “Taking the recently higher crude oil and futures prices into account, we have held our offers steady. However, buying interest is very thin.”

A home appliance manufacturer receiving PP offers on import basis commented, “The current steady trend is backed by firmer crude oil and futures prices. Having some stocks to work with, we are not planning to restock for now as we also think that the import market will hold steady over the short term.” Another buyer manufacturing products for children said, “We have built enough stocks to last for one and a half month. We are not planning to buy more as we don’t expect prices to rise rapidly.”

The PP market in China is now squeezed between high costs, limited supply on the one side and poor demand on the other side. “This disappointing demand is likely to prevent any major price hikes in the PP market,” opine some players, expecting the market to follow a steady trend in the near term. Although poor demand is weighing on the bullish PP outlook, the upward pressure from the cost side remains in place. As can be seen from the chart above, China’s PP market has stabilized for the last two weeks although spot propylene prices continue to post sharp increases on a weekly basis. It’s not only propylene, but also firmer crude oil and naphtha prices which push producers to seek higher levels for August.
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