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Insight | Time:May 7 2018 2:50PM
Co-polymer PP pops up in tightness, but feels risks
 
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Price spread between commodity-grade homo PP raffia and copolymer PP (low melting-flow rate, sourced from coal-based plants) has been widening significantly since end of March 2018, when PP market bottomed out after quarter-long decline. The deviation of the price spread has expanded to 950yuan/mt on Apr 28, more than tripling the rate in end Mar.

Since last week (Apr 30-May 4), price of homo PP raffia started to fall slightly from 8,900yuan/mt to 8,750yuan/mt, while that for copolymer PP kept the uptrend toward 9,800yuan/mt from 9,500yuan/mt a week ago. Opposite development drove the spread between the two products to the highest in the year, 950yuan/mt.



Market resources tightened up in frequent production issues relating copolymer PP facilities. In 2017, China domestic co PP production totaled 2.70 million tons, averagely 220kt per month. But in Apr production of co PP tumbled evidently. The major reduced sources were listed as below:
1. Shenhua Ningxia Coal Industry had restricted co PP sales volume in Apr in order to keep a sustainable supply to the market, since it had scheduled turnaround of its 1 million ton/year plant in May.
2. Sinopec Sabic Tianjin Petrochemical, or SSTPC, has shut its 450kt/year PP line in H1 Apr, and the loss of co PP production was assessed around 5kt.
3. Shaanxi Yanchang switched one 300kt/year line to homo PP injection, and only kept another 300kt/year line for co PP. And it also scheduled month-long turnaround in May.
4. Sinopec Zhenhai Refinning & Chemical, or ZRCC, had shut 300kt/year PP production since Apr 27 for 45-day turnaround.
5. Zhongtian Hechuang switched its 350kt/year line to homo PP raffia due to some technology glitch.

The tightness was felt the month in end Apr, and would likely be continuing in May-Jun. Based current and futures supply-demand, the co PP price was projected to be around 9,850-9,900yuan/mt.

But there may be changes on supply side in the future. Despite of forthcoming turnaround of CTO plant in May, more oil-based plants are lured to produce low-MFR co PP, as low-MFR co PP price is almost higher than medium-high MFR co PP. Based on survey on plants’ production schedules, Yangzi River Petrochemical (400kt/year), Sinopec-SK Wuhan Petrochemical (400kt/year) and FCFC Ningbo (450kt/year) are planning to switch production in May. With major oil-based integrated plants joining in, tight strip of co PP may not appear as expected.

In contrast to the unstable supply side, market consumption seems quite steady. Low-MFR co PP is mainly applied to pipe (for public construction work) and other injection plastics. Downstream plants have purchased at need-to basis steadily, intensively for Shenhua Ningxia’s PP 2500H and Shaanxi Yanchang’s PP EPS30R. According to downstream feedback, Ningxia Baofeng and Zhongtian Hechuang’s PP K8003 is rarely used for pipe production, while mostly mixed with oil-based PP for injection parts. So far, demand from public construction, real estate regions is in a most active stage and may get thinner in the future.

Based on above stated factors, the near 1,000yuan/mt price spread between homo PP and low-MFR co PP is considered too high, despite of late market turnarounds. Late market risks could be brought if more oil-based plants join the production, when CTO plants are shut, and downstream demand may reduce. The high spread may consolidate high for a while and then gradually narrow down.
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