OUTLOOK ’12: China’s PP prices to fall in January-February

27 December 2011 04:55  [Source: ICIS news]

By Chow Bee Lin and Belle Huo

SINGAPORE (ICIS)--China’s polypropylene (PP) prices may fall in the first two months of 2012 on supply pressure from the Middle East and southeast Asia as well as the seasonally weak demand, before rebounding in March as firms restock, industry sources said.

No capacity additions in the Chinese domestic PP industry are expected next year. However, the start-up of Saudi Polymers’ 400,000 tonne/year PP plant in Saudi Arabia in early January and the implementation of China’s free trade agreements (FTAs) with Taiwan and ASEAN (Association of Southeast Asian Nation) countries will increase the supply of PP in China, domestic traders said.

The imminent start-up of the Saudi Polymers plant is expected to drive prices in China lower because that has been the norm in recent years whenever new plants come on stream in the Middle East, the traders said.

More cargoes of homopolymer-grade PP are expected to be exported from ASEAN countries such as Indonesia and Thailand because these cargoes will be exempted from duty in China from 1 January, they added. Block copolymer PP exported from these countries are already exempted from duty in China.

In addition, block copolymer PP from Taiwan will be non-dutiable in China from 1 January under the Cross-Strait Economic Cooperation Framework Agreement (ECFA), which came into effect on 12 September 2010.

Therefore, the expected increase in supply to China, coupled with traditionally weak demand around the Lunar New Year holiday – which falls on 22-28 January next year – and the uncertain global economic outlook, are likely to push PP prices lower, Chinese traders said.

Any price declines in China’s PP market are likely to be moderate because the prevailing spot prices are already near costs, a Chinese PP producer said.

With feedstock propylene selling at an average of $1,203/tonne (€926/tonne) CFR (cost and freight) NE (northeast) Asia in the week ended 23 December, regional producers have to price the benchmark PP yarn grade at a minimum of $1,350/tonne CFR China just to cover their cash costs.

PP producers need a propylene-to-PP price spread of at least $150/tonne to keep their plants running, but the spread was less than $100/tonne last weak because of weak downstream demand.

The benchmark PP injection and yarn grades were sold at an average of $1,275/tonne CFR China last week, according to data from ICIS.

Some PP producers in Taiwan and South Korea said they may cut the operating rates at their plants in January and February because of squeezed margins.

The production cuts in Asia and restocking activities are likely to stem the declines in China’s PP prices in March, Chinese traders and Asian PP producers said.

Most PP end-users and traders have been keeping their inventories low this year, as a result of China’s tight monetary policy, which has capped credit lines, and the uncertain global economic outlook, they said.

“2011 is a year of destocking in the PP sector, both locally and globally,” an Indian PP producer said.

($1 = €0.77)

Additional reporting by Amy Yu, Angie Li, Lizzie Yu, Dong Yu Ling

For more information on PP, visit ICIS chemical intelligence

By: Chow Bee Lin and Belle Huo

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