SE Asia PP weak amid seasonal demand lull, US-China trade tensions

SINGAPORE (ICIS)–Southeast Asia’s polypropylene (PP) prices may come under further pressure in July due to a seasonal lull in demand, with market sentiment bearish amid escalating trade tensions between the US and China.

In the week ended 22 June, spot prices of dutiable PP flat yarn were stable to soft from the previous week at $1,280-1,290/tonne CFR (cost and freight) SE (southeast) Asia, according to ICIS data.

Prices may have peaked at $1,305/tonne CFR SE Asia in mid-June, market players said, following a steady uptrend from late April.

“Demand for PP has historically been week in the third quarter,  a southeast Asia-based trader said.

“Furthermore, the polymers market has lost the support of crude, since crude values haven’t been as strong as before,” the trader said.

At midday, Brent crude was down $1.29/bbl at $74.26/bbl, while US crude declined 24 cents/bbl to $68.34/bbl, following OPEC’s decision to increase output at their meeting on 22 June.

Strong upstream crude and naphtha markets had previously provided PP suppliers some leverage to push up their offers.

Trading activity is likely to pick up this week, when more market players return from the Eid ul-Fitr holidays, but demand looks set to remain thin.

The Eid ul-Fitr in mid-June marks the end of the Muslim fasting month of Ramadan, with extended holidays in Indonesia, which has a predominantly Muslim population.

In the key China market, prices in both domestic and import markets have been declining as the US’ tariffs on more than 800 Chinese products, including PP and propylene copolymers in primary forms, are due to come into effect on 6 July.

While China is not a major exporter of PP to the US, market players are wary of the brewing trade war between the two biggest economies in the world.

These concerns have sent China’s PP futures market spiraling down last week. On 22 June, the September 2018 PP contract traded at the Dalian Commodity Exchange (DCE) declined by 1.37% from the previous day to CNY8,980/tonne ($1,379/tonne).

“When sentiment in China turns bearish, it’s only a matter of time before southeast Asia is impacted,” a Singapore-based trader said.

Spot offers in southeast Asia were at $1,300/tonne CFR SE Asia and above last week, but were largely limited with Middle Eastern suppliers still mostly away due to the Eid ul-Fitr holidays from mid-June.

Most PP offers were from traders holding July-arrival cargoes and keen to offload the volumes before prices fall any further, while market players in Indonesia and Malaysia were also mostly inactive for the most part of last week due to the Muslim holiday.

In Thailand, demand for finished consumer products was suppressed due to the rainy season, affecting consumption of polymer resins.

In Vietnam, PP cargoes from China were more readily available, as Chinese suppliers turned to the export market to offload some cargoes amid softening domestic prices.

Buyers were not in a hurry to stock up on spot cargoes amid expectations that spot prices may slide in the weeks ahead.

Focus article by Leanne Tan

($1 = CNY6.51)

Picture: Sacks of rice in the Philippines. Polypropylene (PP) flat yarn is used in making sacks for grains. (Source: KeystoneUSA-ZUMA/REX/Shutterstock)