Is PP market ready to see rising price?

On the night trading session of June 12, under the drag of the sharp fall in crude oil, PP futures continues to decline, weighing on the spot market. On June 13, the central bank launches a 2 billion yuan seven-day reverse repurchase operation with a winning interest rate of 1.90%, a lower 10bp than the previous interest rate. Although it is a small cut in interest rates, it also sends a signal of steady growth, marking a shift in monetary policy easing to fully stimulate consumption and investment. Affected by this, PP futures rebounds and remains strong.

Returning to the industry itself, does PP have the basis for a price increase?

Firstly, taking homo PP raffia price in East China as an example, currently its price is at a new low since May 2020, at around 7000-7100yuan/mt. Looking back, the situation where East China's homo PP raffia price was below 7000yuam/mt was rare, only occurring during two periods: from November 2015 to February 2016, and from February 2020 to March 2020. Therefore, the current price is already at a low point, and it would be difficult for it to continue to fall without any significant negative factors.

Secondly, at the current price level, traders have a strong intention to keep the price firm and the possibility of further lowering the price is small, mainly due to tight supply.

Recently, with more plants shut for maintenance, PP operating rate has once again dropped to below 80%, and the proportion of production of homo PP raffia has remained below 30% over the past week, and the overall supply pressure is not significant. According to feedback from a certain East China MTO enterprise, the factory is maintaining a zero-inventory operation, and some traders have also reported tight spot supply, with some products maintaining pre-sales.

Considering the above two points, there is still support for market, but the market is still in a stalemate. The main reason is the insufficient downstream demand and concerns about the new startups, although the major factor should be downstream demand. Currently, the view on downstream demand is still in line with the off-season mindset, where essential demand is the main focus with no clear expectation of significant growth.

In summary, the low spot price and tight supply provide traders with some confidence to keep their price firm. However, downstream demand is still the main factor constraining the rise in spot prices, therefore, when demand will improve, it may become a turning point for the PP market.