Polypropylene, the trend is hard to come by

At present, the problem of oversupply of polypropylene market has not been alleviated, and the price is weak as a whole. However, considering that Sino-US trade frictions and US sanctions on Iran will affect the quantity of imported plastic products and stimulate oil prices, polypropylene futures prices are expected to rebound in the near future.


Strong support from peripheral factors

Recently, periphery macro-risk events occur frequently, which has a great impact on commodity prices.

First, the United States imposed a crude oil embargo on Iran in November last year. However, considering the high dependence of some countries on Iranian crude oil, the United States granted eight countries and regions, including China, Japan and South Korea, exemptions from importing crude oil from Iran. However, in May this year, the United States announced an escalation of sanctions against Iran, requiring earlier exemption countries and regions to stop importing crude oil from Iran. At the same time, in response, Iran threatened to block the Strait of Hormuz, which greatly threatened the transportation of crude oil in the Middle East. OPEC’s April monthly report estimated that global crude oil demand in the second quarter was 99.18 million barrels per day and supply was 98.42 million barrels per day. Among them, non-OPEC countries supply 63.35 million barrels per day, OPEC unconventional oil and gas and liquefied petroleum gas supply 5.55 million barrels per day, OPEC crude oil supply 3.2 million barrels per day, with a supply gap of 76 million barrels per day. In March, Iran’s crude oil output was 2.698 million barrels per day. If the U.S. comprehensive crude oil embargo against Iran is implemented, the global crude oil supply gap will be further widened. Although OPEC can partly compensate for Iran’s shortfall by increasing production, it will take some time. Therefore, international crude oil prices will strengthen as a whole, which will give strong support to PP futures prices.

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Second, since last year, Sino-US trade frictions have been plaguing the two countries and even the global economy. After many rounds of negotiations, the differences between China and the United States have become smaller and smaller, and the market generally believes that the Sino-U.S. trade frictions will be resolved. However, recently, US President Trump declared in the social media that he would continue to impose tariffs on China. Sino-US trade frictions intensified and the market fell into panic. China needs to import a large number of plastic products from the United States. If the trade friction between China and the United States escalates or can not be solved, the plastic products imported from the United States will decline. The resulting supply gap will be filled by the domestic market, which invisibly increases domestic demand and has certain support for the price of polypropylene.

We believe that there are more market risk events in the near future, and commodity prices are more affected by peripheral factors. In the short term, market panic causes commodity prices to fall, but as the market returns to rationality, peripheral factors will have a positive impact on polypropylene.

The pattern of supply exceeding demand is difficult to change

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The weakness of supply and demand is the main reason for the continued weakening of polypropylene price, but at present, the supply and demand side of polypropylene has not obviously improved. From the supply side, although the production profit of polypropylene has declined due to the continuous rise of crude oil price before, because of the lower price of olefin monomer, the profit of oil-based PP is 700 yuan/ton at present, and that of coal-based PP is 2000 yuan/ton, and the production enthusiasm of enterprises is still high. In this case, the polypropylene production enterprises which had been repaired in the early stage began to resume production one after another. At the end of April, Qilu Petrochemical Company, Yanshan Petrochemical Company and Wuhan Petrochemical Company resumed production one after another. This week, Qinghai Salt Lake will drive, and the market supply will increase further. From the demand side, due to the weakness of the real estate market, the consumption of white household appliances in the past two quarters is not as strong as in previous years, which makes the demand for polypropylene decrease. In addition to the current pessimistic terminal market sentiment, downstream enterprises mainly buy ready-to-use purchases, and there was no centralized stock market before the May Day holiday. Under the combined effect of increased supply and weak demand, the accumulation of polypropylene during the May Day holiday was higher than expected.

In summary, polypropylene has been interwoven in many vacancies in recent years. On the one hand, the sanctions imposed by the United States on Iran and the escalation of trade disputes between China and the United States will increase the price of crude oil and decrease the import of plastic products, thus supporting the price of polypropylene. On the other hand, due to poor terminal demand and weak supply and demand in the polypropylene market, slow de-inventory will suppress the price of polypropylene. In this case, we believe that it is difficult for the polypropylene market to form a trend. However, with the recent end of the callback, polypropylene has a certain buying value.

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