SunSirs: Concentrated Expansion and Delayed Consumption, resulting in a Deep Decrease in PP Market in the First Half of 2023

According to the Commodity Market Analysis System of SunSirs, in the first half of 2023, the PP (wire drawing) market began to fluctuate at an average price of 7,858.33 RMB/ton at the beginning of the year. After the market weakened during the Spring Festival, the supply and demand double increase prices rebounded after the holiday, and gradually entered the consumption off-season. As of the end of June, the average price was 7,164.29 RMB/ton, and within six months, the PP price fell by 8.83%, with a maximum amplitude of 12.51%. The overall trend tends to decline after narrow fluctuations, with the decline concentrated in May.

PP market trend in the first half of 2023:

At the beginning of the year, the holiday market showed a significant delay in resuming work after the holiday. According to the monitoring of SunSirs, PP wire drawing materials entered the pre holiday market on January 4th, and market participants gradually decreased. The price began to decline from 7,875 RMB/ton, and as of January 11th, there was a first quarter low of 7,700 RMB/ton, with a range decrease of 2.22%. Afterwards, it bottomed out and rebounded, with prices slightly recovering. After the holiday, the market fluctuated narrowly around the price position in early February and remained stagnant. The range fell by 0.52%, with a maximum amplitude of 1.76%. At this stage, the industry's load has been significantly affected by the decline in corporate profitability, leading to a decline in high levels. However, the overall downward adjustment in the industry is limited and the main source of goods is abundant. Meanwhile, the resumption of work for downstream PP enterprises in China was slow in February, with the main downstream plastic weaving enterprises operating at less than 40%. The stocking situation of end enterprises was not as expected, and on-demand procurement was the main focus. Therefore, supply pressure increases instead of decreasing. The supplier's inventory removal operation continues, and the market recovery is hindered. The market supply and demand game continues, coupled with the upstream propylene market rising and falling in February, providing general support for the PP cost side.

The demand follow-up lags behind and fluctuates in March and April, leading to a decline: According to monitoring by SunSirs, the first half of March followed the stalemate in the previous month's market, and then entered a fluctuating and declining market. As of April 30th, the price of PP wire drawing material was 7,707.14 RMB/ton, a decrease of 2.57% from 7,925 RMB/ton in early March. During the month, there were limited changes in the operating conditions of enterprises, with an overall stability of 75% -80%. Supply was stable, and the impact of industry capacity release gradually became apparent, leading to an increase in supply pressure. In terms of demand, the operating rates of downstream plastic weaving and film materials enterprises are fluctuating, and the stocking situation of terminal enterprises is average, with on-demand procurement being the main focus. The performance of raw material propylene market fluctuated and fell. Real orders are mainly traded at high and low levels, with overall poor support for PP. The main negative impact of the industrial chain lies in the low oil price, which hinders the continuous weak operation of the PP market.

The impact of production capacity release highlights the rapid decline in May: According to monitoring by SunSirs, the negative trend of PP wire drawing material in May lasted for more than half a month, falling to a six-month low of 7,028.57 RMB/ton on May 24th, which is also a three-year low. The impact of new production line shipments on the market reached its peak in the early stage, with a surplus of spot goods within the month and a high level of inventory. Downstream plastic weaving enterprises have also achieved a low monthly average operating rate of around 40%, with poor stocking enthusiasm, reduced supply liquidity, and profound supply-demand contradictions. The fundamentals are not favorable, and the industry competition is fierce. The situation only slightly eased by the end of the month.

The market momentum is poor, and the recovery of the market in June is hindered: According to the monitoring of SunSirs, the PP wire drawing material in June took on the low price in May, and the market was repaired in a narrow range. After the raw material propylene bottomed out, it rebounded in a narrow range, with frequent fluctuations in international crude oil, and limited support for PP on the cost side. The industry load is 70-80%, and the supply of goods is still abundant. In terms of demand, it tends to be weak, and although the operating rate of downstream enterprises such as plastic weaving and film materials has overall improved, the overall position is still low. The stocking operation of terminal enterprises tends to maintain production, and the repair of PP price is hindered.

Overall, the main factors affecting the PP market in the first half of 2023 include the following:

Concentrated production of new devices and large-scale industry expansion;

The industry load continues to be high, and supply side pressure remains high;

Downstream enterprises follow up cautiously, and the growth rate of demand side consumption lags behind;

The decline in raw material propylene is significant, and the cost support for PP is not good.

SunSirs polypropylene analysts believe that the PP industry maintained rapid expansion in the first half of 2023, and the current impact of new production line discharge on the domestic market is not matched by the growth rate of terminal demand. The mismatch between industrial production and sales will continue to affect the PP market, and long-term supply side pressure is inevitable. In addition, the international inflationary economic environment has dragged down the profitability of petrochemical enterprises. The overall support for PP on the cost side is not strong, and the domestic PP fundamentals are in the supply and demand game market. Taking into account the influencing factors, the market momentum of various products in the PP industry chain was poor in the first half of this year, and the price trend declined. SunSirs believes that in the long run, the mismatch between supply and demand in the market will still be the main pattern, and the PP market may rise weakly due to this factor.

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