SINGAPORE (ICIS)--Spot prices of polypropylene (PP) in China will likely extend recent losses in the near term on the back of the sharp losses seen in the futures market and tepid downstream demand, market sources said on Thursday.
At the close of trade on 18 April, spot prices of PP raffia in east China were assessed at yuan (CNY) 7,750-8,200/tonne, down by an average of CNY400/tonne from 7 April, according to ICIS data.
Spot trading of PP has remained thin despite the cut in offers by producers and traders, according to market sources.
Petrochemical giant Sinopec on 18 April cut PP raffia prices by CNY150/tonne to CNY8,250-8,400/tonne EXW (ex-works) east China.
The downtrend in the spot market was in tandem with falling futures prices as downbeat sentiment prevailed in the domestic market.
As of 19 April, the May 2017 PP futures contract at the Dalian Commodity Exchange (DCE) was below CNY7,800/tonne while the September 2017 PP futures contract was settled lower than CNY7,700/tonne.
Several PP futures contracts have drifted into backwardation since 10 April, meaning prices are cheaper further into the future.
The futures market has an increasing impact on spot PP prices as more investors take part in futures trading to hedge against the swings in spot prices, market players said.
Auto manufacturers have reported a decrease in sales since the beginning of this year when the government's policy to halve the purchase tax on cars small engines expired. This applies to low-emissions autos and those with engines that are less than 1.6 litres in size.
Orders from plastic modified factories have fallen sharply after the purchase tax on some automobiles was raised to 7.5%, a trader said.
Production of plastic products, the key downstream market for PP, will also be put under great pressure as the state government is likely to impose more stringent measures on the industry for environmental protection purposes.
Sales of PP block polymer has been affected by the shutdown of many small factories, including those producing lubricating oil drums, because of new environmental protection regulations, a trader in north China said.
The Silk Road summit to be held in capital Beijing in May could also force the closure of more small factories, traders in north China added.
Focus article by Dora Xue