Will PP market keep going strong?

After the big ups and downs in September and October, PP futures and spot market enters consolidation in Nov. PP futures fluctuates within 8,450-8,800yuan/mt and spot price adjusts accordingly. In mid Nov, coking coal, coke and thermal coal all rebound, leading to a rise in chemical products.

However, as the coal prices return to a reasonable range and the regional power rationing policy eases, PP market has gradually returned to the fundamentals. So what is the current fundamental situation?

I: Cost:

Although coal and methanol price rises further than that of PP and the cash flow improves significantly, from the overall benefit point of view, it only erases some losses but the profits are still negative.

The prices of naphtha and propane are still high, especially propane, which has a faint upward trend, and the cash flow loss of propane dehydrogenation-based PP has expanded.

On the whole, the cash flow of various PP production processes is generally at a loss, and the cost support of PP is still obvious, and the room for decline is limited.

II. Supply.

In 2021, China domestic new production capacity reaches 3.15 million tons/year, and the output has basically released. Currently, these plants mainly operate at 90%, and most of the plants maintain normal production. In terms of new plants, Xuzhou Haitian II has completed the test run at the end of October and is expected to be officially put into operation in mid-November.

In addition, Gansu Huating and Zhejiang Petroleum & Chemical II also plan to put into production. Moreover, the startup of Shandong shouguang LuQing petrochemical is expected to be postponed to 2022. On the whole, PP supply still has certain growth expectations in the fourth quarter.

III. Demand.

According to the recent market research, the downstream demand situation is not satisfactory. Seeing from the relatively stable BOPP market, it seems that it has also seems to be caught in a dilemma. With the easing of the power rationing policy, the overall operating rate of BOPP has recovered and production has basically returned to normal. However, downstream demand is limited and new orders are not sufficient. It is reported that most of the undelivered orders of enterprises are around a week, some are even less than a week, and some are about 10-15days. The overall situation is not ideal. At present, the market is still in wait-and-see stance, and demand may remain weak in the late market.

On the whole, from the perspective of cost, there is upward potential for PP, but it requires cooperation in many aspects. At present, the market is basically trapped in the awkward situation of "traders do not want to sell at low prices, and downstream do not want to buy high prices materials". The embarrassing situation is difficult to break without obvious news stimulus in the short term. PP market expects to continue to fluctuate; in the medium and long term, the supply and demand pattern is expected to weaken, and PP has downside risks.