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Insight | Time: Jun 30 2018 1:23PM
Paradox in recent PP and BOPP film market
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Polypropylene (PP) market has been waving narrowly since early May, within the range of 9,000-9,300yuan/mt. Look at PP and its downstream sectors, the industry has been in a deadlock for almost 2 months.

First, PP market did not fall as deep as expected.
PP market has been in a traditional slack season, especially into June, when downstream sectors started to suffer poorer sales and production margin and consumption of PP weakened evidently. And PP plant turnaround period had been expected to end largely in Jun, bringing back market supply substantially.

In fact, many major suppliers had delayed their restart, even several times prolonged from the original plan. There were couple of reasons for the delays. Some methanol-based integrated PP plants failed to reach their schedule because of poor margin, directly related with high methanol cost. There were many MTO plants, especially in East China, suffering losses, and many had chosen to stay closed. And plant like Datang Duolun would rather sell methanol instead of processing it further. Other plants including PetroChina Sichuan Petrochemical, Zhongtian Hechuang and CSPC II had hiccups during their original restart and had to prolong the maintenance before they could run stably.

Below table lists the major plants who delay restart of production.
Region Plant Capacity (000' mtpa) Shutdown Original restart Delayed restart
East Ningbo Fund 400 2018-5-5 2018-6-8 2018-7-2
Northwest Datang Duolun 460 2018-4-15 2018-6-1 uncertain
Southwest PetroChina Sichuan PC 450 2018-5-10 2018-6-8 early Jul
Northwest Zhongtian Hechuang 350 2018-6-16 2018-6-22 2018-6-28
South CSPC II 400 2018-6-7 2018-6-16 2018-6-24

Apart from the delay or accidental shutdown, some homo PP producers had switched production to co polymer for better margin. The first chart in the report also shows widening price spread between commodity-grade homo PP and co-polymer PP. Plants including Xuzhou Haitian (200kt/year), Shenhua Ningxia II (300kt/year), Pucheng Clean Energy (300kt/year) and Shenhua Yulin (300kt/year) had shifted production to co PP with low melt flow rate, and thus lowered down the monthly supply of homo PP raffia, which was more favorable for the futures and spot trading market.

Delayed production restart and production switch had keep commodity-grade PP supply low, and also helped balance the stock rate.

Second, downstream BOPP film market still fail to climb up.
BOPP film enters into a traditional offseason since end April lasting till the end of July. During the slack season, order taking is limited for film, and it is rather hard for film price to elevate. When PP prices rose up significantly over end-March till early May, the increase BOPP film market hardly matched. Most film makers started to suffer losses, and many had reduce or shut operation since June.

BOPP film industry has been under deficits since May.

BOPP film plant operating rate has fallen evidently in Jun, compared with previous months. And the overall operating rate in Mar-June has been lower than the same period of 2017 and 2016.

Production issues have delayed PP supply recovery and also the stock building period for PP. PP market is firmer than expected. But its downstream BOPP film industry has been suffering negative margin in the offseason, and the firm feedstock cost makes the situation more difficult.

PP supply is to be largely restored in mid or late July, while it takes another month till August for BOPP film industry to recover. For PP, it may suffer larger pressure in late market.
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