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Insight | Time:May 24 2018 2:38PM
PP staggers in limited supply and weak demand
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Since the rapid rise in early May, PP has been caught in disorderly fluctuations for more than two weeks. Both the supply and demand side and the capital/technical market are logical, and the long and short sides are moving forward and backward, relatively suitable. Below are major supportive factors, and reasons for the disorderly fluctuations.

1. The solidest foundation of PP price rise since early May is tightening supply.

The above chart shows that the overall output of PP gradually reduced since mid and late March, and fell rapidly after entering April, along with the continuous spring maintenance. In the case of sub segment, homo raffia and low-MFR copolymer production declined most evidently, which directly leads to tight supply-demand situation in the two sub segments. Low-MFR co PP was especially tight and drew the attention of speculative force and prices jumped up largely.

2. Relatively strong support from upstream
In addition to the continuous rise in crude oil in the past two months, propylene, which has a direct bearing on PP powder and has significant marginal support for PP, has also risen sharply in the past two months. It has also raised the cost of powder and has also played as a strong support in PP.

The above two points are the strongest support for the rise of PP in the previous period. The supply reduction and rising feedstock cost is the main thrust. However, though PP downstream buyers purchase steadily on their need-to basis, they currently only go periodical replenishment when PP cost goes down, and they are currently suffering poor order taking and profit margin, which limit their feedstock procurement.

April-July is the traditional slack season for BOPP film, so is 2017. Recently, film plants have reflected that their order taking condition is poor, and many old plants are in the brink of deficits and due to the strong performance of raw materials and film prices rise difficult. As a result film plants reduced demand for raw material PP greatly.

In conclusion, market is currently in a weak supply and demand phase. The supply losses caused by intensive turnaround are not yet recovered, and an overall recovery may be seen in end- May to the beginning of June. At this stage, the overall supply of stock is still tight. And the downstream demand is largely restricted by their poor sales in slack season and losing profits against rising PP cost. The spot trading around 9150-9200yuan/mt is indeed poor, while the pressure on PP futures contract is felt intensely around 9300-9350yuan/mt. The speed of de-stock also slows down in recent two weeks, as overall plastic inventory in Sinopec and PetroChina groups linger above 700kt. Therefore, the market is currently in a stage of long-short stalemate and may be continuing to maintain a wide range of volatility.

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