Cautious sentiment prevails in China’s PP markets; export focus intensifies

In China, PP sellers have largely issued rollovers in the past couple of weeks. Ongoing maintenance shutdowns and minor demand upticks have eased supply-demand imbalance. Additionally, high freight rates have supported import sellers, partially offsetting cost pressures stemming from falling prices of propylene feedstock.

Nonetheless, the outlook remains cautious as December may bring heightened supply pressure from resumed operations and capacity expansion. Unless a strong revival in demand occurs during year-end and spring festivities, bearishness is likely to dominate China’s PP markets during the very last part of the year, urging Chinese suppliers to find supply-demand balance by ramping up exports.

Import-local PPH delta at lowest since late July

The current import homo-PP raffia and inj. offers are steady on a weekly basis, at $870-930/ton CIF China, cash. The overall local range for this grade is mainly unchanged from last week at CNY7300-7600/ton ($892-929/ton without VAT) on ex-warehouse China, cash including VAT basis.

The price premium of local material over imports has shrunk to just $11/ton, marking the narrowest gap since late July, as per ChemOrbis Price Index data. Compared to the year-to-date high recorded immediately after the Golden Week holiday, the delta has contracted by 80%, underscoring weak domestic sentiment and potential downward pressure on import prices.

Supply-demand outlook still gloomy

Most players concur on the fact that PP markets are heading towards stronger supply-demand headwinds. “Short-term markets are expected to be covered by bearish sentiment which is gradually fermented on concerns over upcoming capacity expansions and pressure from potential tariff adjustments,” said a trader. An agent of a Taiwanese producer commented, “New production capacity is coming online in China, and the market will soon feel the intensified imbalance between supply and demand.”

The Q4 capacity expansions in China’s PP market have yet to make a significant impact, as only one plant with a 300,000 tons/year capacity commenced operations earlier this month. Meanwhile, maintenance shutdowns have helped keep domestic inventories under control. The combined polyolefin inventories of two major local producers stood at 605,000 tons as of November 27, marking a weekly decline of 55,000 tons, according to market sources.

Nonetheless, ChemOrbis Production News Pro shows a total of 2.05 million tons/year of new capacities has been scheduled to come on stream by the end of November, just a few days ahead. These upcoming startups, coupled with fewer maintenance-related capacity losses in December, are likely to boost supply and intensify pressure on the market.

Higher supply may limit buyers’ willingness to stock up, further dampening PP demand, which remains subdued with little room for a meaningful recovery amid the seasonal lull. A trader based in Ningbo noted, “PP demand is stagnant globally. China typically experiences a demand wave ahead of the year-end, but this has not materialized so far, leaving PP markets prone to further weakness in the near term.”

Exports become key focus; Vietnam being top target

This week, export offers for homo-PP raffia and injection grades stabilized at $920-940/ton FOB China, cash, after a modest $10/ton decline last week. Yet, challenges such as volatile Asian currencies, subdued global demand, and buyers’ preference for cheaper alternatives continue to weigh on export transactions. However, given increasing challenges at home, Chinese exporters are eagerly keeping an eye on export destinations, especially nearby Vietnam.

A Zhejiang-based trader opined, “A shutdown at a local plant leads to limited domestic supply of low-priced materials in Vietnam. Should freight rates become more favorable, the export window to Vietnam may widely open, particularly when exporting to other distant regions remains difficult amid high shipping costs.”

China’s expanding export dominance in 2024

China’s rapid capacity expansions have driven a surge in exports, helping to alleviate local oversupply.

China’s total PP exports in October rose 2% from the previous month and surged 77% year-over-year. Cumulative exports over the first three quarters of 2024 set a new record at around 2 million tons, a 46% increase compared to the previous peak in 2021. This marks a significant step toward China becoming a net PP exporter.

Vietnam regained its position as China’s top PP buyer in October, importing 22,600 tons, which accounted for 11.4% of China’s export market share. Over the first ten months of 2024, Vietnam imported 306,520 tons of PP from China, holding a 15.2% market share—nearly double the volume imported by Indonesia, China’s second-largest buyer.