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Insight | Time: Mar 12 2018 3:38PM
PP powder faces hidden risks from slow destock
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Two weeks passed since the end of Chinese Lunar New Year holiday, PP powder market is still drowned in a bearish mood. Prices have dropped by 400-450yuan/mt compared with the levels before the holiday, to 8,550yuan/mt in Shandong market, and to 8,700yuan/mt in East China market.

Viewing the fundamental conditions of PP powder markers, their inventory is still high. Average stock rate in PP powder enterprises is around 4.86 days, based on each plant daily production volume. But the rates are differential from areas, as that in Shandong province was around 1.5 days, while that in East China is around 9 days, marking significant more pressures on local producers. Below chart shows the abrupt inventory accumulation since the 2018 Chinese Lunar New Year holiday.

It is not hard to find reason for such slow destock process after holiday.

First, PP futures and granule spot market have been declining continuously, dampening PP powder market in tandem. In Dalian Commodity Exchange, the most actively traded contract for PP has lowered from 9,304yuan/mt on Feb 23 to 8,970yuan/mt on Mar 8, in the same period homo PP raffia granule down from 9,180yuan/mt to 8,950yua/mt, and powder down from 8,900yuan/mt to 8,550yuan/mt.

Powder plants have to cut down offers continuously to keep a normal sales. When price differential between PP granule and PP powder narrows to 200-400yuan/mt, players incline to cut down or cease purchasing PP powder entirely.

Second, downstream players are returning slowly, and their restock for PP powder is held thin. From early to mid-March, the National People's Congress, the top legislature, and the Chinese People's Political Consultative Conference (CPPCC) National Committee, China's top political advisory body, convene their annual sessions. Part of North China plants are delayed to restart. In addition, downstream purchase is held back when feedstock market is in continuous decline.

Third, rising propylene cost is transiting from a support to a pressure on PP powder.

Propylene price in Shandong has hit bottom in end-Feb, and then stabilized and rebounded. PP powder plants then suffered reducing profit and even losses in early Mar. When powder price could hardly follow up feedstock market, the supportive power is transiting to a pressure instead. Then, should PP powder plants stop production or cut down operating rate, till feedstock propylene cost ease down?

Above all, PP powder market is faced with negative factors from propylene, and granule market. Market trend looks similar in the first-second quarter of 2017, when price decline has extended to end of Apr.
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