BLOG: China PP spreads data continue to show no recovery; market weakest since 2003
SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. There will be lots of minor dips in China polypropylene (PP) price as the market heads towards the bottom.
A case in point was last week, when PP import prices edged higher because of restocking ahead of the Golden Week holiday, and/or because of the perception that the market had, in fact, already bottomed out.
But, as the charts in today’s post confirm, the market is a huge, huge distance from a full recovery:
The China PP price-naphtha cost spread so far this year is just $264/tonne. This the lowest annual spread since our PP and naphtha assessments began in 2003. The previous lowest annual spread was $447/tonne in 2012.
The chart showing average China PP prices (block copolymer and homopolymer injection and raffia grades) versus CFR Japan naphtha costs is very instructive. This year has seen the narrowest gap between PP prices and naphtha costs for the longest period since our price assessments began in November 2002. This points to the weakest producer pricing power on record, reflecting far too much new PP capacity arriving at a time of what could well be negative real economic growth in China in 2022, despite what the official figures might say.
The latest net import and local production data indicate that China continues to head towards a 1% decline in PP demand in 2022. This would compare with 6% growth last year.
Will events turn around in 2023? I think perhaps not, because of the unavoidable “Common Prosperity” economic reforms and the zero-COVID policy logjam that China finds itself in. Early data also suggest that China’s crucial exports of manufactured goods may be declining because of the global inflation crisis.
But you don’t have to take our word for this. Instead, just follow the spreads data, which over many years has been the most reliable guide to supply and demand balances. Follow the spreads every week across a range of chemicals and polymers in China and you will discover whether a recovery has started – and then whether, over a longer period, markets have fully returned to their “Old Normal”.
Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.
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