1、 Price trend

Business Club monitoring: in 2019, PP changed its strong momentum in 2018, and the price fluctuated back. As of December 23, the main offer price of T30S, a domestic producer and trader of PP, was about 7916.67 yuan / ton, with a decrease of 14.10% compared with that at the beginning of the year. This year, a lot of rubber and plastic materials are trapped in the same negative situation of capacity expansion and weak demand, PP is no exception. The main reason for the weakness of PP in this year is the long-term production background and the shrinking downstream.

After the beginning of 2019, the price of propylene in the upstream of PP continued to go down and the inventory was high, so the merchants lowered the focus of offer to deal with it. Upstream support weakened. The first half of the year also witnessed the easing of the Sino US trade war, with crude oil supported by tensions in the Middle East and OPEC production cuts. The improvement of US trade and the gradual rise of crude oil played a supporting role in PP market. However, the overall supply and demand of PP is weak, and the industry continues to de stock. The weakening of downstream demand in the second quarter is one of the main reasons for negative PP, and the new production expectation has also started to release pressure to PP supply side at this time. At the same time, in the first half of the year, there were less parking and maintenance in China’s petrochemical enterprises, and imported materials were successively concentrated in Hong Kong. The multi-faceted decline resulted in a staged low of 8233.33 yuan / ton in early June.

In the second half of the year, PP upstream propylene market experienced ups and downs due to uncertain international crude oil prices in the third quarter. At the end of July, the price of crude oil rose sharply. By the middle of the quarter, the international crude oil market had been sharply reduced several times, which resulted in a phased negative for propylene. At the end of the quarter, affected by international news such as the attack on Saudi oil production facilities, the US President Trump’s consideration of relaxing sanctions on Iran, and Saudi Arabia’s statement that oil production will resume soon, the international crude oil market suddenly dived after the surge, and the propylene market experienced twists and turns. However, the supply is tight before and after the festival, and the current refinery inventory is low. The downstream polymerization factories are profitable, the customers are active in purchasing and active in transaction. With the completion of goods preparation, the profit of the merchants was sold, and the price of propylene fell in late September.

Accordingly, the domestic PP price was adjusted in the third quarter, and the beginning of the quarter was at the end of the field digestion inventory stage, and the inventory pressure was further reduced. In addition, the price of propylene at the cost end fluctuated higher, and the willingness of some businesses to hold up the price increased. Domestic PP offer fluctuated higher. Meanwhile, the sharp rise in futures also boosted spot prices. Compared with June’s market, the shock correction lasted until August. The overhaul capacity was 348800 tons, an increase of 37.43% compared with 258800 tons in July. In the middle of the quarter, the cost support from propylene also decreased, leading to factory price reduction due to many factors.

As the demand side raw material inventory is relatively low before the peak season, the PP market will naturally rise in the peak season. Moreover, at the end of the quarter, the “double festival” stock up boom was intensified. In addition, the air pollution control plan around Beijing Tianjin wing caused the shutdown of polymerization plants in many cities. The inventory of two barrels of oil PP and traders continued to decline, and businesses actively shipped goods, and the inventory decreased significantly. Tight spot supply is good for price formation. Until the end of September and the beginning of October, PP futures fell in shock, which affected the confidence of the industry. The focus of spot price in most regions was loose, the market rose and fell, weak shock. The overall trading atmosphere in the market is general, and the market supply is expected to increase. With the stock up boom basically completed, high-end price transactions decreased and PP price fell.

During the National Day holiday, due to the impact of the policy of limiting production and traffic, the markets of all parties generally maintained stability, with occasional downward trend. After the end of the policy, the overall price of PP market fell in October, a weak correction. The upstream propylene market weakened, with limited cost support for PP. In terms of supply, in the middle of this month, the units such as Anyuan united and Daqing Refining and Chemical Co., Ltd. were put into operation again, with the domestic operation rate reaching 90%, and the peak season of PP maintenance was ended. New equipment capacity is also gradually put into production, and domestic supply pressure will continue to increase. After saving, the replenishment of downstream factories has been completed, without centralized replenishment. Under the influence of environmental protection policies, it is difficult to further improve the downstream operating rate, which is still low compared with the same period last year. As a result, the stock removal rate of petrochemical industry began to slow down.

At the end of the year, the spot prices of PP market showed each other’s rise and fall, and the overall adjustment was weak and volatile. From the end of the year to the beginning of next year, the production capacity of PP also put a lot of pressure on the supply side. Compared with 2015 and 2016, the production capacity expansion of PP in recent two years is converging. However, in 2019, the domestic production capacity has exploded. According to statistics, the annual new production capacity including powder is expected to be close to 6 million tons, with a growth rate of 26.3%. Industry competition is becoming increasingly fierce and profits are being squeezed. In addition, the main demand of plastic products – plastic weaving, BOPP film, non-woven fabric, injection molding and other performance weak. The weak downstream products and the slow follow-up of the downstream factories’ replenishment are the important factors and manifestations of the compression of the profits of plastic enterprises.

3、 Future forecast

PP analysts of business club think that the performance of polypropylene market in 2019 is a typical imbalance between supply and demand. The expansion of capacity growth has reached its highest since 2010. And this capacity expansion is expected to continue until 2021, and PP capacity will be in the stage of rapid expansion for a long time. In addition, the foreign trade of rubber and plastic industry in China is blocked to some extent, and the competition between domestic polymerization plants will be more and more fierce. At the same time, the upstream propylene market is volatile, which has limited support for PP. The follow-up of the growth of the downstream demand side cannot smooth the rapid expansion of domestic production capacity. Therefore, the business club believes that in 2019, PP fundamentals are long and short, and the market is weak and volatile in terms of results. In the next two years, with the release of supply side pressure from new capacity, PP industry may be more difficult.