Chinese players: Supply tightness to counterbalance weak demand, prevent sharp price reduction

Chinese players are confident that domestic homo-PP market is less likely to witness any major reduction in the coming weeks in spite of the persistently weak demand condition. There is, of course, a strong base for such claim, sources said, citing the heavy maintenance shutdown schedule from May to July in the country that takes a considerable output off the market.

The traditional off-peak season for homo-PP in China runs through May to July and several major converters in the country have even expressed the intention to further reduce operation rate in the near term to protect profit margins. “End product orders are rather weak. The current raw material prices are way above our acceptance levels, and therefore, we prefer not to stock up beyond immediate need,” a BOPP sheet maker commented.

There have been some adjustments in spot homo-PP offers in the local market, yet the changes are limited to the range CNY50-100/ton ($8-16/ton). “Sales are slow, but we can’t really offer too large discounts given the lack of inventories pressure,” a trader said. 

Data combined by CommoPlast showed that total polyolefins inventories at Sinopec and CNPC’s warehouses reach 690,000 tons as of 14 June 2018 – much below the psychological threshold of 800,000 tons. “Besides the low stock in the local market, we are not seeing much import cargoes these couple of months. International sellers show very little interest in China given better margins in other markets,” a trader added.

Supply is set to tighten further in the near term following a series of plant shutdown scheduled from May to July. The condition might only improve after a majority of these plant resume production by mid to late of July. 

At the time this report is published, domestic homo-PP yarn traded in China at CNY9100-9400/ton ($1214-1254/ton without VAT), EXW China, cash equivalent. Import homo-PP to China is reported at $1250-1280/ton CFR China, LC AS term.