China PP falls amid trade war, yuan

26 July 2018 16:58 Source:ICIS Chemical Business

China’s polypropylene (PP) import prices are under pressure amid the country’s escalating trade war with the US and the continued depreciation of the yuan against the US dollar.

On 20 July, PP prices were at $1,200-1,220/tonne CFR (cost & freight) China, down $15/tonne or 1.2% from the previous week, according to ICIS data. Prices have shed 3.2% from mid-June, the data showed.

Downstream demand is seasonally soft, with the weakness aggravated by concerns about the US’ proposed tariffs on additional $200bn worth Chinese imports. The new US tariffs, which are expected to include a host of plastic products from China, could take effect as soon as end-August after public consultations are completed, market players said.

Chinese producers of plastic products are not accepting export orders amid uncertainties on US tariffs. On 6 July, the US imposed 25% tariffs on $34bn worth of Chinese goods, prompting a similar move by China, thus triggering the trade war between the world’s two biggest economies.

Downstream buyers are also afraid to buy PP import cargoes following the sharp depreciation of the Chinese yuan to the US dollar, an east China-based trader said.

The yuan’s slump is also an offshoot of the escalating US-China trade tensions. On 24 July, the Chinese yuan (CNY) was at CNY6.80 to the $1, shedding more than 6% of its value since the start of June, according to data from xe.com.

In the domestic market, spot PP flat yarn prices in east China on 20 July stood at CNY9,300/tonne, up CNY140/tonne week on week, and have been rising since end-June, according to ICIS data. Domestic prices have risen because of a higher futures pricing as well as tighter domestic supply. The local price of imported material last week after the 6.5% duty, 16% value-added tax (VAT) and a CNY150/tonne port fee stood at CNY1,0267/tonne, about CNY1,000/tonne more expensive that domestic PP flat yarn, the data showed.

China is a major importer of PP in Asia, with available supply to the market expected to grow in the coming months amid plant start-ups. This could exert further downward pressure on its import prices for PP.

“Sales have been slow this month. We expect new offers for August would decrease a bit,” a distributor from South Korea said.

S-Oil’s 405,000 tonne/year PP capacity in Ulsan, South Korea; and Shaanxi Yanchang Yan’an Energy‘s 250,000 tonne/year capacity in China are expected on stream in the third quarter.

“It [new supply will] must bring more supply pressure on the PP market in near future,” an east China-based trader said.

Falling prices in southeast Asia and Europe have also been exerting downward pressure on China’s PP market. In southeast Asia, spot PP flat yarn prices continued to fall as supply increased following the start-ups of Nghi Son Refinery and Petrochemical’s (NSRP) 400,000 tonne/year plant in Vietnam and the 200,000 tonne/year facility of Lotte Chemical Titan in Malaysia.

In Europe, prices of the material have started falling as supply-demand in the domestic market is balanced, resulting in a reduction in import volumes.

In the week ended 20 July, PP flat yarn prices in Vietnam were down $20/tonne week on week to $1,220-1,240/tonne CFR (cost & freight); while those in Europe declined €10/tonne.

Click here to see more on the trade war between China and the US

By Dora Xue