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Insight | Time: Mar 25 2020 2:25PM
PP recent-months pressure remains with liquidity increasing
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Since the Spring Festival, PP spot-futures price spread spiraled higher from around -200yuan/mt to 50yuan/mt, which was profitable for hedgers. However, with the gradual strengthening of the PP spot-futures basis, hedgers started to sell their spot cargoes and market sources increased. Moreover, the destocking progress of upstream was not smooth, thus they had strong willingness to sell goods at relatively lower price and market price had been affected.

After the Spring Festival, because of the high inventory, restricted logistic transportation and financial pressure, upstream offered low intensively to sell goods and PP spot-futures price spread weakened significantly, giving hedgers a better opportunity for arbitrage, and the price spread around -200yuan/mt had attracted a large number of capital arbitrage speculative demand. However, recently, upstream kept their price firm and were not willing to offer lower and the mainstream market price was evidently lower than the ex-works price, which helped the hedges to sell smoothly. And as the supply of hedgers had been gradually released, spot sources increased and PP spot-futures price spread moved higher further. High-price trading in the upstream market remained unsmooth.

It can also be seen from the changes in petrochemical inventory that, in addition to the inventory-reduction caused by a large number of hedging demand, it was more difficult for petrochemical to destocking in March. Moreover, it was obviously that the hedgers offered lower than the ex-works price, and the inventory had accumulated continuously compared with last month in mid-to-late Mar.

Recently, some plants shut for short maintenance have restarted. And some plants plans to shut for turnaround in 2020 have postponed to mid-to-late April or even May. Therefore, even if the capacity in 2020 may be significantly higher than that of previous years, the follow-up maintenance is expected to be relatively small. Also, there may be many plants shut since mid-May, but inventory pressure remains in recent months considering the current market inventory and transactions. And the market may destocking evidently after mid-May under the support of production reduction.
[RISK DISCLAIMER] All opinions, news, analysis, prices or other information contained on this report is provided by analyst of Zhejiang Huarui Information Consulting Co., Ltd (CCFGroup) as general market commentary and does not constitute investment advice. CCFGroup will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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