FocusChina's PP market bearish as government tightens lending

15 June 2011 06:12  [Source: ICIS news]

By Belle Huo

Polypropylene is used in the manufacture of food packaging and containersSHANGHAI (ICIS)--Prices of polypropylene (PP) in China are expected to fall further through July, on the back of faltering demand from downstream markets as the government continues to tighten its credit lending policies, market participants said on Wednesday.

The authorities have tightened lending and raised interest rates in a bid to stem accelerating inflation, which hit a 34-month high of 5.5% in May, according to official figures announced on Tuesday.

The central bank on Tuesday also raised the reserve requirement ratio for banks by 50 basis points from June 20.

Downstream manufacturers are facing difficulties in obtaining loans because of the measures, resulting in lower purchasing ability and demand for feedstocks such as PP.

“We are struggling with the tightened credit lines by the central bank, which has strengthened confidence in the government’s ability to tackle inflation, but has caused buyers to be more cautious in purchasing [PP],” a major plastic downstream manufacturer in China said.

Spot prices of imported PP in China have slumped on subdued demand and mounting inventory levels, and are expected to continue on a downtrend, market sources said.

Prices of raffia yarn and injection-grade homopolymer PP were at $1,500-1,530/tonne (€1,035-1,056/tonne) CFR China this week, 7.4% or $100-140/tonne lower than first-half May levels at $1,600-1,670/tonne CFR China.

For block copolymer PP, discussions fell to $1,500-1,550/tonne CFR China this week, a sharp dive of $120-130/tonne or an average of 7.5%, from $1,620-1,680/tonne CFR China three weeks ago, according to data from Chemease, an ICIS service in China.

Buyers have largely withdrawn to the sidelines without a clear market direction of when PP prices will bottom out.

In the domestic market, prices of homopolymer PP raffia yarn edged down by 4.8% to an average of yuan (CNY) 12,000/tonne ($1,852/tonne) EXWH (ex-warehouse) this week, down from an average of CNY12,600/tonne EXWH in May, according to Chemease data.

“It has stimulated a hot debate recently” of when prices will hit bottom, said a source close to the market.

Sellers are largely downbeat about the market outlook, although a few of them agreed that it gave them an opportunity to build up their inventories.

However, several traders said that the turnaround season for major petrochemicals producers during the third quarter is expected to provide some relief on the downward pressure of supply on prices.

Sinopec is planning to cut its PP output in June, traders said.

Yanshan Petrochemicals plans to shut down its 440,000 tonne/year plant in the first half of August for about 30 days of maintenance, while Dushanzi Petrochemicals is to turnaround 690,000 tonnes/year of its PP capacity in the second half of July for about two months.

In addition, the production of household appliances such as air-conditioners and refrigerators will go into its traditional peak season in September, increasing the demand for PP feedstock, these sources added.

($1 = €0.69, $1 = CNY6.48)

For more on PE, PP visit ICIS chemical intelligence
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By: Belle Huo



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