SINGAPORE (ICIS)--China’s polypropylene (PP) domestic prices are likely to be stable or fluctuate in a narrow range in July as demand remains weak but supply becomes less due to turnarounds and inventories of major producers come down.
The China PP domestic market saw a bearish spell in the first half of 2017, with PP flat yarn grade prices in east China slumping to yuan (CNY) 7,575/tonne in May from yuan (CNY) 9,000/tonne in February, a fall of 15.8%.
The bearish momentum was also fuelled by a weak demand and a decline in crude oil prices.
Under the pressure of sharp decline of domestic PP market, foreign suppliers reduced list prices month by month but allocated less volumes to China, keen just to maintain the business relationship with Chinese customers without offering large cargoes.
However, the extent of the decline of import market was limited in the first half of 2017 with prices fluctuating between $1,055/tonne and $975/tonne in February.
Therefore, EXWH (ex-warehouse) prices for domestic PP flat yarn were nearly similar with price of PP flat yarn CFR (cost & freight) China, especially from March until now.
Import PP market shrank heavily as Chinese buyers preferred to acquire domestic spot cargoes which were readily available.
Lower domestic prices opened an arbitrage window with Vietnam in April and May. Many suppliers and traders chose to export cargoes to Vietnam where demand was robust, prices were higher and freight was cheap by around $10-15$/tonne.
However, the downtrend lost momentum in end June, as inventories of Sinopec and PetroChina declined considerably while market also prepared for planned PP plant turnarounds in June and July.
Domestic prices additionally found support from PP futures market, which in turn went up as Iron ore futures pulled up all commodities on the exchange.
The iron ore futures gained following Chinese premier Li Keqiang’s speech last week, which outlined the government’s efforts to eliminate low-grade steel production, boosting overall sentiment.
After domestic PP prices moved up, export activity came down as offers for FOB (free on board) China shot up to $1,040/tonne, while CFR Vietnam assessment of last week was $1,037.5/tonne.
Some import traders are maintaining a wait-and-see stance.
If domestic PP prices keep rising, import PP prices will be more competitive due to gap between EXWH prices for domestic PP flat yarn and price of PP flat yarn CFR China, which is quite small now.
However, demand in China market is still subdued.
The week-long Lunar New Year holiday in China on 27 January to 2 February has had a dampening effect on the country’s overall polyolefin demand in the first half year and this weakness still persisits.
Hence most market players believe domestic PP prices may keep stable or fluctuate in a narrow band in July.
Focus article by Dora Xue