Southeast Asia polypropylene supply pressure may outweigh demand improvement

Asia’s polypropylene (PP) market may see further pressure from supply lengthening, which may outweigh potential demand improvement.

Back in June, PP producers were desperately looking for sales outlets for their cargoes as slow demand recovery in China and ample supply threatened to erode their already slim margins further.

In the first half of 2023, China’s PP imports decreased by 3% year-on-year. Finished goods consumption remained slow domestically and demand in conventional export markets were badly hit by the poor economic conditions overseas.

On top of that, some producers in southeast and northeast Asia were restarting their plants following turnarounds and more new production complexes in China started commercial operations.

China saw the additional of 7.45 million tonnes per annum of production capacities in 2023 and more than 4 million tonnes new capacities are expected to start up in the second half of this year.

For Chinese exporters, the narrowing price gap between China and southeast Asia made the latter less attractive, so they began pushing more volume to India instead.

While a large part of the imports to India is sourced from the Gulf Cooperation Countries (GCC), exports and re-exports from China grew in prominence during discussions, especially with some Chinese suppliers offering their cargoes at similar or even lower prices compared to suppliers from the Middle East.

A tighter supply began to drive up PP prices in southeast Asia. Some buyers quickly restocked before prices rose.
However, the buying momentum quickly lost steam as converters struggled to pass on the increased in cost to their customers.

Demand is expected to be healthy in September in India, as converters restock on inventories ahead of Diwali festivities, and Monsoon season comes to an end. Harvest season will see an increased demand for Food packaging applications such as PP flat yarn and film grades.

But the question remains what will happen after that?

Recent announcements of economic stimulus measures by the Chinese government gave the market some hope and Chinese PP futures prices surged in August as a result. But the actual effects of these policies remain to be seen since end-product consumption continued to be sluggish.

The growing demand-supply imbalance is another concern.
Without any significant demand pick-up in China, it would be hard for PP prices in southeast Asia to find sufficient uplift.

Every time the price gap between southeast Asia and China grows, exports and re-exports from China would find their way to Vietnam and other destinations with lower duty barrier. And as domestic PP prices in these places come under pressure, local suppliers export their materials to neighbouring countries like Indonesia, triggering a ripple effect.