PP expects to rise after the pullback

After the crazy rise in September, PP market retreats. PP futures drops nearly 1,000yuan/mt, and spot price declines nearly 500yuan/mt. After a brief correction, the market basically entered a state of volatility and wait-and-see.

Seeing from the PP futures, the daily candlestick line of Jan 2022 futures contract has bottomed out and rebounded for many consecutive days. At present, the overall bullish trend remains unchanged, but it has also entered the stage of upward momentum exhaustion. It is difficult for the market to fall sharply and rise sharply, the market may maintain wide fluctuations.

Cost side:

In 2021, the price of basic energy has risen sharply, such as crude oil, coal and natural gas. For example, the most actively traded contracts for ZCE coal has risen from 874.8yuan/mt in early September to the current 1911.8 yuan/mt, an increase of nearly 118%; and methanol Jan futures contract price has increased from 2,844yuan/mt in early September to the current 3,787yuan/mt, an increase of nearly 33%, while PP Jan 2022 futures contract has increased by only 17-18% since the beginning of September. This has also led to the continuous expansion of cash flow losses for coal-based PP and MTO PP. There is also an atmosphere in the market that "selling methanol is better than selling PP and selling coal is better than selling methanol", forcing some plants to reduce production or even shut.

Looking at propane dehydrogenation-based PP, as the price of propane exceeds $900/mt, PDH-based PP also enters the situation of loss.

At present, only oil-based PP and imported propylene-made PP are still profitable, and the imported propylene-made PP is benefits from the low price of imported propylene.

Supply side:

China PP plants shut for maintenance in Oct

Recently, as Yan'an Energy & Chemical has restarted and Shenhua Baotou plans to restart, the proportion of homo PP raffia has rebounded, which has a certain impact on the market, but it is still basically within the normal range. On the whole, there are still many plants shut for maintenance in October. In the second half of the month, Sinopec-SK (Wuhan) PC, FCFC Ningbo, Sinopec Yangzi PC (YPC) and CSPC plan to shut for maintenance. In addition to the above-mentioned plants, it does not rule out the possibility of temporary production reduction or shutdown of some plants affected by raw material prices and relevant policies. In this way, the pressure on the supply side may be further reduced. For example, due to power restriction policy, Ningbo Fund plans to shut for maintenance on November 1, and the restart time has yet to be determined.

Demand side:

Downstream is also affected by power cuts, some plants have cut production to varying degrees, but the overall impact is limited. Take BOPP as an example, although the overall operating rate has decreased, the downstream orders are relatively stable. BOPP is currently profitable, and its acceptance of raw materials is acceptable.

In summary, the support from the cost end is obvious, which is the main factor for PP short-term bullishness. With the arrival of winter in the northern hemisphere and the heating season in northern China, coal demand increases, coal and methanol prices remain high, supporting the PP market. In the short term, PP is easy to rise and hardly fall, and it may continue to rise in line with supply and demand.