Is China's PP market nearing the peak?

Over the past two weeks, import homo-PP to the country surged nearly $100/ton on an average, pushing all offers below the $1050/ton threshold out of the market. The extent of price increment in local ground is even more impressive, ranging between CNY800-1100/ton ($115-158/ton) during the same period. Today, many players in the country think the PP market is very near to peak and that room for further increment is rather limited.

One of the factors contributing to such expectation is the softening futures market that has closed the arbitrage opportunity between spot and future trading. A trader informed, “We think futures market shall encounter fundamental correction as it has been speculated heavily in the past two weeks.”

Buying interest for imported cargoes therefore started to show signs of slowing down, especially toward offers at the upper end of the overall price range. A buyers added, “We were bidding Philippines homo-PP cargoes at $1140/ton CFR China yesterday but got rejected. And today we are not confident to make any purchases at same bid level considering the down side risk.”

The main question now is whether spot PP market would head for a hard landing? The probability is rather low, players said. “The basic demand from manufacturers is still in place, which would keep the lower range of the overall price range stable. If any adjustment was to take place, we think the upper end of the market would take on the role,” a trader informed.

According to media reports, China exports rise for the first time since March in November. Trade outlook is expected to improve in the beginning of 2017 as export orders increased followed the discounts given by manufacturers as a result of currency depreciation. For this, players believed that converters might need to replenish material continuously.