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Insight | Time: Sep 5 2018 4:34PM
PP may rebound in short-term support
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China domestic polypropylene prices have been adjusted downward for more than half a month since market touched a yearly highest in mid-Aug, dropping from above 10,000yuan/mt to below 9,750yuan/mt, down by around 3.2%.

In early Sep, PP prices seem stabilize and even rebound slightly, with spot-futures basis strengthening at the same time. The basis between spot homo PP raffia prices and Jan futures contract climbs up from 0 to around 50yuan/mt, and some sources require spot trading at 100yuan/mt premium over Jan contract. In addition, other sources including homo PP injection and fiber grades also firm up.

Supply is Aug tumbles with number of plant issues, as some have been closed for scheduled turnaround and more for accidental reasons or short maintenance. And even when major plants restart production, their delivery of product has been delayed for around one week. Spot market is thus supported firmly.

Unit (kt) Homo PP raffia low-MFR co PP Total
August'18 596.5 226.5 1643.5
Y-o-y growth -6.1% -5.9% -3.8%
M-o-m growth 0.5% -14.2% -6.3%

In Aug, domestic PP production was around 1.6435 million tons, down 6.34% from 1.7548 million tons in July, and down 3.81% from the same period of last year.

Below table lists the plant close and turnaround condition in Aug alone, and the production loss in the month reaches 345,397mt, which outnumbers the losses in July evidently.

Plant Capacity (kt/year) Close date Restart date Production loss (mt)
Changzhou Fund 300 1-Jul   25,479
Qinghai Yanhu 160 30-Mar   13,589
Datang Duolun 460 16-Apr   39,068
Sinopec Zhongyuan PC 100 15-May 21-Aug 5,753
Zhongtian Hechuang 350 25-May   29,726
Liaoning Huajin Tongda 60 10-Jun 7-Aug 1,151
PetroChina Hohhot PC 150 2-Jul   12,740
PetroChina NorthChina PC 100 2-Jul 27-Aug 7,397
PetroChina Dushanzi PC 70 5-Jul   5,945
Ningbo Fortune 400 18-Jul 28-Aug 30,685
PetroChina Daqing PC 300 1-Aug   24,658
Shenhua Ningxia Coal I 200 2-Aug 20-Aug 9,863
Shenhua Xinjiang 450 3-Aug 27-Aug 29,589
Shanghai SECCO 250 3-Aug 8-Aug 3,425
Shenhua Ningxia Coal II 600 5-Aug   42,740
Xuzhou Haitian 200 6-Aug 15-Aug 4,932
Shenhua Ningxia Coal I 300 7-Aug 14-Aug 5,753
Sinopec -SK Wuhan PC 200 7-Aug 13-Aug 3,288
Zhongtian Hechuang 350 8-Aug 13-Aug 4,795
PetroChina Dushanzi PC 250 10-Aug 15-Aug 3,425
Sinopec Shijiazhuang Refinery 200 10-Aug 21-Aug 6,027
PetroChina Daqing PC 300 15-Aug 29-Aug 11,507
Hebei Haiwei 300 15-Aug 21-Aug 4,932
Sinopec Changling PC 100 15-Aug 20-Aug 1,370
Zhongjing PC 350 16-Aug 20-Aug 3,836
Sinopec Luoyang PC 140 17-Aug 21-Aug 1,534
Pucheng Clean Energy 400 17-Aug 21-Aug 4,384
Sinopec Maoming PC 200 22-Aug   4,932
Zhongjiang PC 350 28-Aug   2,877
Total       345,397

For production of homo PP raffia, the production growth month-on-month is below zero since April 2018. The long-term limited supply results in limited inventory. Leading raffia producers Ningbo Fund and Yangzi River Petrochemical have been in low or even none inventory status for long term. And inventory in other integrated coal-chemical producers have been relatively low except for the period of slack sales season and price hike. The inventory pressure of homo PP raffia is low.

Based on inventory data in Sinopec and PetroChina groups, and other private and coal-chemical plants, inventory pressure is evidently downloaded in Aug, which may shoulder market in short. Before mid or late of September, inventory pressure of commodity-grade homo PP raffia will be limited, and spot PP market may stay firm in general.

However, there is worry in the farer future.
Major plant turnarounds will be mostly ended by late Sep, especially several coal-based raffia producers. Turnarounds in Oct-Nov are quite limited, and supply will be rising up. In addition, downstream demand has been tepid so far. Till the traditional peak sales season of Sep, downstream purchasing activities have not risen to the height expected. It is worth of attention whether or not will downstream replenish stock intensively around end of Sep (before the week-long holiday beginning Oct 1). PP futures contract for Jan may rebound up in H1 Sep, on the back of firm spot trading, while late market performance could be influenced by recovering supply.
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