In 2023, the PP (wire drawing) market began to fluctuate at 7858.33 yuan/ton at the beginning of the year. Before the Spring Festival holiday, the market turned weak and fell. However, due to the favorable fundamentals, the PP price rebounded and reached the highest price of 8033.33 yuan/ton in the cycle on February 2. It then fluctuated and fell to the end of March, with an average price of 7825.71 yuan/ton. In the first quarter, the PP price fell by 0.42%, with a maximum amplitude of only 3.12%. The overall trend tends to fluctuate within a narrow range.
PP market trend in the first quarter of 2023:
After a decline in January, the PP wire drawing material rebounded: On January 4th, it entered the pre holiday market, and market participants gradually decreased. The price began to decline from 7875 yuan/ton, and as of January 11th, it reached a quarterly low of 7700 yuan/ton, with a range drop of 2.22%. Afterwards, it bottomed out and rebounded, with prices slightly recovering. Just after the holiday, it is necessary to support and cash in. In addition, the raw material propylene was affected by the stocking peak before the holiday, resulting in a good trading atmosphere and a price increase, which is beneficial for the rapid recovery of the PP market.
Deadlocked operation in February: The PP wire drawing material market in February fluctuated narrowly around the price position at the beginning of the month, resulting in a stalemate operation. The average price at the beginning of the month is 7966.67 yuan/ton, while the average price at the end of the month is 7925 yuan/ton, with a range decrease of 0.52%. At this stage, the industry's load has been significantly affected by the decline in corporate profitability, leading to a decline in high levels. However, the overall downward adjustment in the industry is limited, and the overall supply of goods is mainly abundant. The supply pressure within the month has increased instead of decreasing. The supplier's inventory removal operation continues, and the factory price has been reduced. Meanwhile, the resumption of work for downstream PP enterprises in China was slow in February, with the main downstream plastic weaving enterprises operating at less than 40%. The stocking situation of end enterprises was not as expected, and on-demand procurement was the main focus. The market supply and demand game continues, coupled with the upstream propylene market rising and falling twice within the month, which provides general support for the PP cost side. In February, the PP price fluctuated narrowly and remained largely stagnant.
March's volatile decline: The first half of March followed the stalemate in February, with PP's decline concentrated in the second half. As of March 31st, the price of PP wire drawing material was 7825.71 yuan/ton, a decrease of 1.25% from the 7925 yuan/ton at the beginning of the month. During the month, there were limited changes in the operating conditions of enterprises, with an overall stability of around 80%. Supply was stable, and the impact of industry capacity release gradually became apparent, leading to an increase in supply pressure. In terms of demand, the operating rates of downstream plastic weaving and film materials enterprises are fluctuating, and the stocking situation of terminal enterprises is average, with on-demand procurement being the main focus. The raw material propylene market has been fluctuating and declining throughout the month. Real orders are mainly traded at high and low levels, with overall poor support for PP. The main negative impact of the industrial chain lies in the low oil price, which hinders the continuous weak operation of the PP market.
Overall, the main factors affecting the PP market in the first quarter of 2023 include the following:
New devices are gradually being shipped, and the industry's production capacity continues to expand and upgrade
In recent years, China's Polypropylene industry has been in a continuous period of expansion and capacity expansion. Since 2018, the average annual production capacity growth rate in China has been 10.27%. It is understood that, except for some enterprises delaying production until 2023, the total new production capacity of domestic PP in 2022 will be about 3 million tons. Since the first quarter of this year, new units of Guangdong Petrochemical, Zhenhai Refining and Chemical, and Hongrun Petrochemical that have been delayed in production have successively released production to the market. The significant increase in supplier pressure this quarter, coupled with an estimated 2.2 million tons of production capacity to be put into production in the second quarter, has led to a generally bearish outlook for the future.
In terms of operating rate, the operating rate of domestic polypropylene enterprises in the first quarter was generally high and stable, with narrow fluctuations in industry load around 80%. The total production in the first quarter was about 7.675 million tons, with stable production and abundant market supply. Excluding the Spring Festival holiday, the production remained basically unchanged compared to the previous quarter. The continuous easing of supply, coupled with the accelerated expansion of production capacity, has added to the supply pressure this quarter, resulting in weak pricing for enterprises.
Downstream enterprises follow up cautiously and demand side consumption growth lags behind
The overall consumption of polypropylene in the first quarter of China was weak and fluctuating. The slow resumption of work in various downstream industries of polypropylene after the Spring Festival holiday, coupled with weak fluctuations in international crude oil, highlights the phenomenon of high cost pressure and low profits for enterprises, which restricts their order situation. At the same time, the impact of imported inflation has affected PP terminal enterprises, and the demand for stocking is generally cautious, with PP consumption declining particularly significantly in February. Faced with the rapid expansion of polypropylene production capacity, its consumption situation is relatively lagging, dragging the spot price trend.
Poor cost support for raw material propylene after increasing and suppressing polypropylene
As of March 31, the average spot price of domestic propylene was 7096 yuan/ton, a decrease of 1.46% from the 7244 yuan/ton at the beginning of the year. During the quarter, the early stocking tide drove demand, downstream low level restocking, and upstream inventory was controllable. But later demand was suppressed, and prices quickly fell. The combination of weak fluctuations in raw material prices has led to unstable profitability in the industrial chain. The competition in the propylene market was fierce in the first quarter, and the current market has returned to fundamentals, with limited support for PP costs.
Future forecast: The PP industry will continue to expand in the first quarter of 2023, and the impact of new production line discharge has not yet reached its peak, making it difficult to keep up with the growth rate of terminal demand for the time being. The mismatch between production and sales will continue to affect the PP market, and supply side pressure may become long-term. In addition, the international inflationary economic environment has dragged down the profitability of petrochemical enterprises. The overall support for PP on the cost side is not strong, and the market is positioned in a supply-demand game. Taking into account the influencing factors, the market momentum of various products in the PP industry chain was average in the first quarter, with price fluctuations leading to a decline. Starting from April, the release of liquidity funds by the central bank may benefit the PP market from a policy perspective, but in the long run, the mismatch between supply and demand in the market will still be the main pattern, and the PP market may not be able to rise significantly due to this.
