The Imbalance Between Supply And Demand In The Polypropylene Market In The First Quarter 2024

In the first quarter of 2024, the decline in the polypropylene (PP) market is difficult to change.

According to data from Zhuochuang Information, as of March 21st, the gross profit of oil to PP enterprises was 1392 yuan/ton, coal to PP enterprises were 218 yuan/ton, and PDH to PP enterprises were 589 yuan/ton. The overall loss situation has not shown a significant improvement.

Yang Juan, a polypropylene analyst at Zhuochuang Information, stated in an interview with China Business News that since the Spring Festival, domestic polypropylene supply pressure has continued, while downstream demand has been weak, resulting in weak price increases. In addition, high raw material costs have led to most enterprises still being on the edge of losses.

The exacerbation of market supply-demand imbalance

Polypropylene is the second largest universal synthetic resin in the world, widely used in the automotive industry, household appliances, electronics, packaging, and building materials and furniture fields, accounting for about 30% of the total consumption of synthetic resins.

However, since the beginning of this year, the imbalance between supply and demand in the polypropylene market has become increasingly prominent due to multiple factors.

Although the overall operating load rate of domestic polypropylene production enterprises remains at a relatively low level of 79% -80%, due to the relatively high inventory of raw materials and finished products on the demand side, downstream terminal procurement is mainly based on small demand, and stable and continuous procurement is difficult to maintain. This leads to slow inventory reduction and difficult supply pressure for enterprises.

The inventory of major domestic polypropylene production enterprises is still hovering at around 900000 tons, significantly higher than the same period last year. At the same time, from the perspective of intermediate links, the inventory of traders remains high due to the suppression of invoicing and the impact of low-priced goods arriving before holidays.

To cope with supply pressure, many enterprises have begun to actively increase maintenance and planned maintenance, but it is still difficult to change the current situation of increased production. Currently, the changes in the supply side of the market mainly come from the game between new production capacity and maintenance equipment.

The addition of PP production capacity in March has been delayed. Anhui Tianda, Huizhou Lituo, Lihua Yiwei Yuan Chemical, Quanzhou Guoheng Chemical, and other facilities with a total production capacity of 1.1 million tons, originally scheduled to be put into operation in March, have only been released as scheduled by Huizhou Lituo. Most other facilities have been delayed until late March or even April May.

From the perspective of device maintenance, the planned maintenance device production capacity involved in March was 3.25 million tons, but mostly concentrated in late March. The overall maintenance loss of the device increased compared to February and weakened compared to January. The expected PP production in March is around 2.95 million tons, and the operating load rate of the equipment is around 79.8%, an increase of 1 percentage point from February. The overall production also showed a certain increase compared to January February.

Regarding the game on the supply side of the market, analyst Chen Bin from Tu Duoduo stated that based on the current maintenance plan, the overall supply contraction expectation remains unchanged, but the pressure of expanding new production capacity remains.

“High capacity expansion” has become the biggest label of polypropylene in recent years. According to Tu Duoduo’s statistics, the domestic polypropylene production capacity is planned to increase by a total of 8.705 million tons in 2024, making it the year with the largest capacity expansion.

Accelerated pace of product structure adjustment

Faced with the complex environment of supply-demand imbalance, rising costs, and intensified market competition, the polypropylene market is actively seeking change and accelerating the pace of product structure adjustment. Driven by new consumer hotspots such as automobiles and home appliances, the production of various sub categories of PP has steadily increased, especially the production of high-end products such as medium and high melting copolymers has increased significantly.

The total production of medium high melting co polymerization in 2023 reached 16.06 million tons, an increase of nearly 18% compared to 2022, accounting for 10.07% of the total PP production, with a production growth rate of 20.77%. The proportion of medium high melting co polymerization in the total production structure of PP is relatively large and the growth rate is still accelerating.

In response to this trend, Yan Qiaoling, an analyst at Zhuochuang Information, told reporters that under the new requirements of high-quality development, the 2024 Government Work Report has made new deployments for “large-scale equipment updates and consumer goods trade in”. Under the joint efforts of promoting consumption policies and the policy of “large-scale equipment updates and exchanging old for new consumer goods”, the process of transformation and upgrading of automotive home appliances towards intelligence, electrification, and greenness is accelerating. Enterprises are also facing challenges in production efficiency and production structure adjustment. In addition, the current export data of home appliances and new energy vehicles is improving, and the amount of PP modified by medium and high melting point copolymerization still needs to be increased.

“Under the expected increase in overall polypropylene production, the enterprise’s production schedule will be adjusted based on the actual market demand and the production situation of competing enterprises.” Yang Juan said.

In March, except for a slight decrease in the production of pipes, high melting fibers, BOPP films, and drawing materials compared to the previous month, other varieties are expected to increase to varying degrees compared to the previous month. Among them, the expected growth is more significant in medium melt copolymerization, thin-walled injection molding, and CPP film. The expected production of medium melt copolymerization is about 210000 tons, a month on month increase of about 86%, with a particularly significant increase. The expected production of PPB pipes is about 13000 tons, a month on month decrease of about 11%, with a more significant decrease. Among them, the production of wire drawing is expected to decline in March compared to the previous month.

Overall, there have been significant changes in the production schedule of enterprises in March, with a significant differentiation in product structure, which is also related to the current market operation. On the one hand, the adjustment of production structure can enable production enterprises to adjust according to changes in demand; On the other hand, through staggered production, enterprises can effectively avoid phased oversupply and significant price declines caused by product clustering and listing, thus occupying a favorable position in fierce market competition.

However, the current polypropylene market still faces many challenges. Although downstream factories have resumed work one after another after the holiday, the lack of follow-up on new orders has led to a delay in the start time of most factories compared to previous years. Meanwhile, downstream buyers remain cautious and market demand is difficult to improve. In addition, the inventory of production enterprises and traders remains high after the holiday, with pressure from both supply and demand sides. The market lacks confidence in “gold, silver, and four”, forcing enterprises to adjust their production schedule to cope with market changes.