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Significant changes in supply and demand pattern, limited growth in the polypropylene market in the later stage
2023/9/1
Recently, the domestic polypropylene market has experienced a strong upward trend that has not been seen for a long time. Despite the rise in futures and the absence of obvious contradictions between supply and demand, the market has shown a continuous upward trend. In the later stage, with the arrival of the peak demand season for the "Golden Nine Silver Ten", the expectations of the industry for increased demand have increased. However, the market will usher in a new round of centralized production and completion of centralized maintenance, and supply may gradually increase. Can the upward trend of polypropylene continue in the game of demand peak season and supply increase?
Since July, domestic polypropylene has turned from a decline to an increase, rising from 7090 yuan/ton in early July to the current 7670 yuan/ton, with a cumulative increase of nearly 600 yuan/ton, or 8.46%. In the later stage, the market gradually enters the traditional peak demand season, but the supply side pressure brought about by the new production capacity and the adjustment of enterprise device load in the market continues to increase. The overall supply and demand pattern of the market changes, and it is expected that although the market has an upward trend, the increase may be relatively limited.
In the second half of the year, the domestic polypropylene market stopped falling and rose, especially after August when the market's upward trend amplified. Taking wire drawing in the East China market as an example, as of now, the mainstream transaction volume in the market is 7600-7670 yuan/ton, an increase of 280-270 yuan/ton from 7320-7400 yuan/ton at the beginning of the month, and an increase of 630-570 yuan/ton from 6970-7100 yuan/ton at the beginning of June. In the short term, macro, cost, and supply and demand support the market more significantly, with a wave of current resonance rising in the market. However, downstream procurement on the demand side has limited follow-up efforts and there is a certain degree of high price resistance, which has become a resistance to the market's upward trend and compressed the market's upward space.
The end of centralized maintenance and the increase in supply pressure due to the centralized deployment of new production capacity
Although the newly added production capacity is relatively limited in August, the intensity of device maintenance is gradually weakening, and the increase in supply side is more obvious. According to data estimates, the domestic PP production in August is estimated to be 2.8559 million tons, an increase of 7.61% month on month and 17.90% year-on-year. The cumulative production from January to August 2023 was 20.965 million tons, an increase of 6.17% compared to the same period last year.
From the perspective of the weekly operating load rate of enterprises, since late April, the domestic polypropylene production enterprises have been operating at a weekly operating rate of less than 80%. However, as of August, the unit operating load rate has gradually increased to over 80%. At the same time, from the perspective of weekly production, there has been a significant increase in weekly production in August, which is partly due to the smooth operation of the initial production units, On the other hand, it is also due to the significant reduction in the overall maintenance efforts of the device. Especially in mid to late August, the supply pressure increased significantly.
Improved demand within the month to provide support for the later stage
August is in the period of low and peak demand replacement, and the increase in operating rates and stable procurement of raw materials still significantly boost the market. Industries such as BOPP and automotive modification have also seen an improvement in orders. Recently, the market's procurement has been relatively stable, and there has been some upward trend in some areas. However, due to high finished product inventory and low processing profits, the terminal's acceptance of high priced raw materials is not strong enough, resulting in limited sustained release of scale demand, which to some extent affects market growth.
From the perspective of overall operating load, although the increase in operating load in downstream main fields such as plastic weaving, BOPP film, and injection molding is relatively limited, the increase in operating load for plastic weaving is 1 percentage point, BOPP is 3 percentage points, and injection molding is 1 percentage point. But overall, the trend of positive demand is relatively obvious, driving the improvement of the market supply and demand pattern on the one hand, and increasing the confidence of market participants on the other hand.
Limited upside space in the dual increase in supply and demand market
The future market supply and demand are expected to show an increasing trend. The increase in supply side is mainly due to the release of new production capacity and the weakening of equipment maintenance efforts.
According to data statistics, the number of new maintenance devices planned for September continues to decrease, with an estimated production capacity of 1.41 million tons. It is preliminarily estimated that the PP maintenance loss in September will be 283500 tons, a decrease of 26.74% compared to the previous month.
In terms of new production capacity, in early September, Ningxia Baofeng Phase III planned to produce 500000 tons/year of equipment. At the same time, Ningbo Jinfa New Materials Phase I first-line 400000 tons/year and Donghua Energy Maoming 400000 tons/year of equipment are planned to be put into operation in September. The smooth release of new production capacity is expected to gradually increase market supply pressure.
On the demand side, September is the traditional peak season in the soft bag industry, and demand is expected to improve compared to the previous period. From the above figure, it can also be seen that BOPP enterprises have increased their acceptance of new orders and alleviated the pressure on finished product inventory; The recent increase in profits of downstream enterprises (-205/-5) is expected to enhance downstream procurement enthusiasm.
Since July, domestic polypropylene has turned from a decline to an increase, rising from 7090 yuan/ton in early July to the current 7670 yuan/ton, with a cumulative increase of nearly 600 yuan/ton, or 8.46%. In the later stage, the market gradually enters the traditional peak demand season, but the supply side pressure brought about by the new production capacity and the adjustment of enterprise device load in the market continues to increase. The overall supply and demand pattern of the market changes, and it is expected that although the market has an upward trend, the increase may be relatively limited.
In the second half of the year, the domestic polypropylene market stopped falling and rose, especially after August when the market's upward trend amplified. Taking wire drawing in the East China market as an example, as of now, the mainstream transaction volume in the market is 7600-7670 yuan/ton, an increase of 280-270 yuan/ton from 7320-7400 yuan/ton at the beginning of the month, and an increase of 630-570 yuan/ton from 6970-7100 yuan/ton at the beginning of June. In the short term, macro, cost, and supply and demand support the market more significantly, with a wave of current resonance rising in the market. However, downstream procurement on the demand side has limited follow-up efforts and there is a certain degree of high price resistance, which has become a resistance to the market's upward trend and compressed the market's upward space.
The end of centralized maintenance and the increase in supply pressure due to the centralized deployment of new production capacity
Although the newly added production capacity is relatively limited in August, the intensity of device maintenance is gradually weakening, and the increase in supply side is more obvious. According to data estimates, the domestic PP production in August is estimated to be 2.8559 million tons, an increase of 7.61% month on month and 17.90% year-on-year. The cumulative production from January to August 2023 was 20.965 million tons, an increase of 6.17% compared to the same period last year.
From the perspective of the weekly operating load rate of enterprises, since late April, the domestic polypropylene production enterprises have been operating at a weekly operating rate of less than 80%. However, as of August, the unit operating load rate has gradually increased to over 80%. At the same time, from the perspective of weekly production, there has been a significant increase in weekly production in August, which is partly due to the smooth operation of the initial production units, On the other hand, it is also due to the significant reduction in the overall maintenance efforts of the device. Especially in mid to late August, the supply pressure increased significantly.
Improved demand within the month to provide support for the later stage
August is in the period of low and peak demand replacement, and the increase in operating rates and stable procurement of raw materials still significantly boost the market. Industries such as BOPP and automotive modification have also seen an improvement in orders. Recently, the market's procurement has been relatively stable, and there has been some upward trend in some areas. However, due to high finished product inventory and low processing profits, the terminal's acceptance of high priced raw materials is not strong enough, resulting in limited sustained release of scale demand, which to some extent affects market growth.
From the perspective of overall operating load, although the increase in operating load in downstream main fields such as plastic weaving, BOPP film, and injection molding is relatively limited, the increase in operating load for plastic weaving is 1 percentage point, BOPP is 3 percentage points, and injection molding is 1 percentage point. But overall, the trend of positive demand is relatively obvious, driving the improvement of the market supply and demand pattern on the one hand, and increasing the confidence of market participants on the other hand.
Limited upside space in the dual increase in supply and demand market
The future market supply and demand are expected to show an increasing trend. The increase in supply side is mainly due to the release of new production capacity and the weakening of equipment maintenance efforts.
According to data statistics, the number of new maintenance devices planned for September continues to decrease, with an estimated production capacity of 1.41 million tons. It is preliminarily estimated that the PP maintenance loss in September will be 283500 tons, a decrease of 26.74% compared to the previous month.
In terms of new production capacity, in early September, Ningxia Baofeng Phase III planned to produce 500000 tons/year of equipment. At the same time, Ningbo Jinfa New Materials Phase I first-line 400000 tons/year and Donghua Energy Maoming 400000 tons/year of equipment are planned to be put into operation in September. The smooth release of new production capacity is expected to gradually increase market supply pressure.
On the demand side, September is the traditional peak season in the soft bag industry, and demand is expected to improve compared to the previous period. From the above figure, it can also be seen that BOPP enterprises have increased their acceptance of new orders and alleviated the pressure on finished product inventory; The recent increase in profits of downstream enterprises (-205/-5) is expected to enhance downstream procurement enthusiasm.
Overall, there will be significant changes in the supply and demand pattern in the later stage of the market, with demand gradually transitioning to the traditional peak season. Downstream orders are expected to improve, while macro positive stimuli may continue to be released, providing strong support for the market, and the market is expected to experience an upward trend. However, considering the increasing pressure on the supply side, it will suppress the market and limit market growth in the later stage.
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