SunSirs: Industry Expansion & Macro Negative, China PP Market Rose and Fell in 2022

https://www.chemnet.com   Dec 20,2022 SunSirs

　　According to the monitoring of SunSirs, the PP (wiredrawing) market in 2022 started to rise at 8,130 RMB/ton at the beginning of the year, and began to fall at a high level in March. As of December 19, the PP price was 7,941.67 RMB/ton, down 2.32% for the whole year, with the overall trend rising first and then declining.

　　The PP market trend in 2022 is mainly divided into three stages:

　　The first stage: rapid expansion stage. According to the monitoring of SunSirs, the price of PP wire drawing material was 8,130 RMB/ton on January 1, and reached an annual high of 9,360 RMB/ton as of March 9, with a range increase of 15.13%. During the period, the demand for goods preparation and bottoming at the beginning of the year was slightly delayed, but the downstream resumption and shipment were slightly delayed after the festival, but the just needed support was solid. In addition, the decline of coal and the strength of propylene made the polypropylene fundamentals more profitable. In addition, the uncertainty of European situation in March is still strong, the market's expectation of future energy supply interruption is further strengthened, the petrochemical industry chain continues to rise strongly, and the price position of polypropylene is rising rapidly due to various favorable factors.

　　The second stage: high shock and falling stage. According to the monitoring of SunSirs, the average price of PP wire drawing material fell by 14.71% from 9,360 RMB/ton on March 9 to 7,983.33 RMB/ton on August 22. In the first half of this stage, the divergence of the international market on the crude oil market caused sharp price fluctuations, the petrochemical industry chain benefit transmission was not smooth, and the direct upstream propylene gradually weakened. The purchase follow-up of PP downstream enterprises slowed down, and buyers were more resistant to high price goods. The PP price was temporarily high and fluctuated. In the second half of the stage, under the influence of macro inflation such as the Federal Reserve's interest rate hike, oil and propylene were involved in a decline, and the negative situation in the upstream of the PP industrial chain increased, and cost support weakened. The consumption of terminal enterprises has gradually entered the off-season level, the operating rate has decreased, and the PP inventory position has reached a high level year on year. The petrochemical plant and the traders took orders for the delivery of profits, mainly for the stock removal operation, which caused the PP price to freeze at this stage and then fall.

　　The third stage: shock adjustment stage. According to the monitoring of SunSirs, the PP (wire drawing) price was 7,941.67 RMB/ton as of December 19, down 0.52% from 7,983 RMB/ton on August 22. At this stage, the main fulcrum is the traditional peak demand season. Seasonal digestion and inventory operations boosted the market from September to early October. However, with the end of the stock boom, the price increase gradually gave up. Looking back on the demand in the peak season of this year, its performance was not as good as that of previous years, and the pattern of PP weakening was not improved subsequently. In addition, the product market of major downstream enterprises such as plastic knitting and BOPP was poor, and the spot price of PP had fallen below the 8,000 RMB/ton mark by the end of the year.

　　Overall, the PP market trend in 2022 is mainly affected by the following aspects:

　　Long term loose expectation of supply due to rapid expansion of industrial capacity

　　In recent years, China's polypropylene industry has been in the big cycle of capacity expansion. Since 2018, the domestic average annual capacity growth rate has been 10.27%. Under the background of rapid growth of domestic total capacity, the pressure on the supply side is gradually increasing, and the price level is difficult to rise or fall.

　　According to SunSirs, the distribution of time points for the production of new capacity in 2022 is relatively average. In the first half of the year, Zhejiang Petrochemical's third and fourth line oil made PP plants with a total annual output of 900,000 tons were put into production in January and March respectively. The 10 t/a unit of Daqing Haiding was completed in February, and the process of producing PP from propylene was adopted. In addition, Zhenhai Refining and Chemical Phase II, Weifang Comfortable and Tianjin Bohai Chemical all have 300,000 t/a units put into production. In the second half of the year, except that Ningbo Daxie (300,000 t/a) and Zhongjing Petrochemical Phase II (600,000 t/a) were put into production in September, other units are expected to be put into production successively in November and December. As of October, 2.8 million tons of new PP had been put into production, and the total domestic PP production capacity reached 34.87 million tons. If the capacity of six new projects such as Sinochem Hongrun is realized on time, the total new PP capacity will reach 5.4 million tons/year this year. In the long run, the expectation of supply easing will not change, and the pressure on suppliers will increase significantly.

　　Consumption is restricted by many parties and demand side lags behind

　　The downstream of polypropylene is mainly concentrated in plastic knitting. In 2022, plastic knitting will account for 32.5% of the overall consumption of polypropylene, and the main application fields are plastic knitting, net rope, fishing net, etc. However, the low technical threshold of the plastic knitting industry and the low profit of the enterprise have restricted the development of the industry. Although the downstream consumption of wire drawing increased by 0.94% this year, its follow-up is relatively lagging in the face of the rapid expansion of polypropylene production capacity.

　　In addition, various downstream polypropylene industries, including plastic knitting industry, were affected by imported inflation to varying degrees this year, resulting in high cost pressure and low profits, which restricted the orders of enterprises. Due to the decline of the general consumption index of daily necessities and fuel vehicles in 2022, the consumption of polypropylene decreased. Compared with last year's consumption, low melt copolymerization decreased by 0.51%, homopolymer injection molding decreased by 0.28%, high melt copolymerization decreased by 0.36%, and medium melt copolymerization decreased by 0.01%. It will take time to tap the domestic market's demand for polypropylene downstream industry.

　　The polypropylene market is dragged down by the increased loss of raw propylene industry

　　According to the monitoring of SunSirs, as of December 18, the average spot price of domestic propylene was 7,608.60 RMB/ton, up 0.79% from 7,548 RMB/ton at the beginning of the year. It rose first and then fell, with the decline concentrated in the third quarter. The supply of propylene continues to grow, the demand follow-up is relatively weak, and the price of raw materials remains high, resulting in a continuous decline in the profitability of the industrial chain. During the year, the propylene market was highly competitive, and the industry suffered more losses. The support for PP price gradually weakened throughout the year.

　　Market forecast: Polypropylene analysts from SunSirs believe that the PP industry will expand significantly in 2022. If all new production lines are put into production on time at the end of the year, it will be difficult for the terminal enterprises to follow up the demand for the time being. By then, the staged mismatch of production and marketing will be deepened, and the pressure on the supply side will inevitably have a peak. The current macro inflationary economic environment remains unchanged, and the profits of petrochemical enterprises have shrunk due to its impact. The overall support of the cost side for PP has weakened, and the market returns to the basic guidance of the supply and demand game. To sum up the influencing factors, the current PP industry chain is full of empty space, the mentality of practitioners is not strong, downstream activities tend to be conservative, and the market momentum is general. It is expected that the PP price will fluctuate in a narrow range in China, mainly for consolidation and operation.

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