China Polypropylene Market Tightens

By John Richardson

Polypropylene (PP) appears to have become very tight in China over the last week as a result of a reduction in import availability and a resurgence in buying activity.

“PP is incredibly tight right now because the supply from North America is no longer available for delivery to China,” said a Singapore-based trader.

There’s been a sharp decline in availability from North America as a result of rising propylene costs.

C3s have risen by 53% since November 2009, according to my Houston-based ICIS pricing colleague, William Lemos. Contract pricing for April settled on Tuesday at 7 cents/lb higher ($154/tonne).

The surge in US propylene has been driven by reduced refinery operating rates on the dismal state of the refining industry globally.

PP producers have become more heavily dependent on feedstock supply from FCCs over the last 12 months due to crackers switching to lighter feedstocks.

“US Gulf Coast crackers are running on 82% ethane and only 18% naphtha compared with 65% ethane and 35% naphtha a year ago,” a North American industry source told the blog earlier this week.

The switch to lighter feeds is the result of tumbling US natural gas prices relative to crude, a response to the big rise in local gas supply.

“I haven’t seen virtually any US material arriving in China so far this year and the Middle East producers, for whatever reason, don’t seem to be able to fill the gap right now,” the Singapore trader continued.

But the lack of US dollar material has only tightened the China market over the last week as before then buyers were largely on the sidelines, the trader added.

“What happened about a week ago was the sudden re-entrance of the baxially oriented (BOPP) finished-film producers who hadn’t been buying raw-material resins for several months,” he said. 

“These finished-film producers are big in scale in China, using the latest modern equipment, and so when they buy they buy in big volume.

“I think they came back in a rush because both yarn and BOPP film-grade resin prices had slipped to very affordable levels (these converters can run either yarn or BOPP film-grade resin through their machinery).

“A big factor behind their re-entry into the market was the rise in oi prices.”

Yarn grade was at $1,250-1,300/tonne CFR main port China and BOPP film-grade resin was at $1,280-1,350/tonne CFR main port China, according to the ICIS pricing assessment for the week ending April 2.

As the ICIS pricing graph below indicates, pricing for these two grades has declined recently.





YarnBOPP.pngAll homopolymer grades were in tight supply with stocks in bonded warehouses almost exhausted, the trader added.

This might just scupper the hopes of European buyers who are keeping an eye on availability in Asia in an effort to gain relief from high local PP pricing.

PP prices have already increased in Euros200/tonne in 2010 with further rises of as much as Euros130/tonne on the cards, according to my London-based ICIS pricing colleague, Linda Naylor.

PP Producer inventories in Europe have been low a result of restricted supply of C3s due to refinery and cracker operating-rate cutbacks.

Propylene supply is restricted because European refineries are running low on the terrible state of refining margins.

Cracker rates were also cut back earlier this year in an effort to initially prevent ethylene from becoming oversupplied.

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