2023-08-19 Polypropylene Market Analysis

  1. Review of Market Trends:
    In the first half of 2023, PP futures showed an overall trend of opening high and closing low. At the beginning of the year, with the expectation of demand recovery in the post-pandemic era and pre-holiday stocking before the Spring Festival, PP reached a new high for the year. However, after the Spring Festival, downstream demand did not show significant improvement. Moreover, with the Federal Reserve’s continuous interest rate hikes and increased financial market risks, including PP, most commodities experienced a downward trend and reached the lowest point of the year. After June, macroeconomic pessimism eased, and factors such as the Federal Reserve nearing the end of interest rate hikes and OPEC+ reducing oil production to boost oil prices drove a rebound in PP prices.
  1. Analysis of Influencing Factors:
    1. Supply side: Despite multiple maintenance operations, the supply side continues to face pressure. The utilization rate of PP production facilities has remained at historically low levels this year. This is due to both cost pressures and constraints on sales. Petrochemical manufacturers have actively reduced production and cleared inventory. However, due to the continuous commissioning of new PP facilities in recent years, the overall production capacity has increased. Although the operating rate of facilities has declined significantly, the production volume remains high compared to historical levels. In the first half of this year, there were still new facilities coming online, and their production capacity will be realized in the second half of the year. In the current weak demand environment, the oversupply situation continues to exert pressure on prices. As the traditional peak season for consumption approaches, if market demand improves, production companies will be more willing to increase production, leading to further increases in output and putting pressure on PP prices. Therefore, in the long term, it is difficult for the supply side to provide support for PP prices.
    2. Strong demand expectations, but no significant improvement in reality. On July 31st, the National Development and Reform Commission issued measures to restore and expand consumption, covering stabilizing bulk consumption, expanding service consumption, promoting rural consumption, expanding new types of consumption, improving consumption facilities, and optimizing the consumption environment. The document proposed 20 targeted measures, involving various aspects related to polyolefins such as automobiles, housing, home furnishings, electronics, catering, cultural tourism, etc. With policy support, the demand expectations for PP and PE are positive. However, looking at the industry, as of August 11th, the weighted operating rate of downstream PP products enterprises was only 47.49%, which is lower than the three-year average of 53.65%. The actual demand remains weak. July and August are the off-season for consumption, and overall order performance is sluggish. Apart from packaging and thin-wall injection molding related to takeaway services, the overall momentum of terminal demand is insufficient. Terminal product manufacturers do not have an urgent need for raw materials and tend to make purchases on demand. Therefore, the actual demand for PP has not improved. Furthermore, according to data from the National Bureau of Statistics, as of June, the cumulative production of plastic products in China was 35.2626 million tons, a year-on-year decrease of 0.7%. The inventory of the rubber and plastic products industry was 364.05 billion yuan, a year-on-year decrease of 2.3%. In contrast, the production of plastic products in the terminal consumer sector, such as major household appliances, increased by more than 10% year-on-year (air conditioners by 16.6%, household refrigerators by 13.3%, household washing machines by 20.3%), cumulative automobile sales increased by 9.8% year-on-year, and the income from express delivery services of enterprises above a certain scale increased by 11.30% year-on-year. When comparing the production and inventory situation of plastic products with the manufacturing and sales situation in the terminal industry, plastic products are undergoing inventory digestion, so the urgency for raw material demand in the short term is general. In the second half of the year, attention should be paid to the improvement of profitability and inventory digestion in the plastic products industry. If inventory declines, product manufacturers will initiate a new round of raw material restocking, which will bring support to PP demand.
  1. Relatively high inventory levels: The persistent oversupply and weak demand have led to high levels of PP inventory in the market. Although petrochemical manufacturers have been actively reducing their inventories, the accumulated inventories of other production companies and traders have exerted certain pressure on the market.

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