China’s PP prices to fall on weak demand, pessimistic outlook

15 February 2012 06:32  [Source: ICIS news]

SINGAPORE (ICIS)--China’s domestic PP prices are expected to drop in the near term because of weak demand, as a result of the low plant operating rate in most downstream sectors, market sources said on Wednesday.

The Chinese domestic PP market is quiet as downstream producers have been experiencing a labour shortage and this has led to the low 70% plant operating rates seen in February, market players said.

Downstream producers have also had to raise their employees’ wages in an effort to ease the labour shortage, so their operating costs have gone up, said traders.

In addition, downstream producers in China are still coping with tightened credit, so their buying interest has weakened.

Market players previously expected prices to rise, but their bullish sentiment has weakened as demand has not picked up as expected and the upcoming turnarounds in the country have failed to support prices.

As such, PP traders said they are pessimistic about the price outlook and reduced their offers in an attempt to offload their inventories.

Domestic PP yarn offers were at yuan (CNY) 10,300-10,700/tonne ($1,635-1,698/tonne) EXWH (ex-warehouse) in China on Wednesday, down by CNY50-100/tonne from prices on 13 February.

However, major producer Sinopec on 14 January raised its PP yarn prices by CNY100/tonne to CNY10,500-10,800/tonne, compared with 13 January, according to data from Chemease, an ICIS service in China.

The petrochemical major raised its prices in anticipation of tighter supply as some of its subsidiaries’ PP plants are scheduled to be shut for maintenance and it has less cost pressure than other PP producers, said a market source.

Some market players thus said domestic PP prices will fall if downstream demand continues to be weak, but Sinopec’s price hike should limit the drop in prices.

($1 = CNY6.30)

By: Amy Yu

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